Invest in a Non-banking Financial Company
Published: November 20, 2019
Why Should You Invest In A Non-Banking Financial Company?
“Money is a terrible master, but an excellent servant” -P. T. Barnum
While it is undeniable that money makes the world go round, it’s what you do with it that truly makes a difference. Money management is a tricky business because portfolios differ from person to person, based on the resources available, options they have access to and knowledge of, and their willingness to take a risk.
In a utopic world, doubling your principle with little to no risk would be the obvious choice. However, the reality is that greater the risk, greater the reward. While playing it safe guarantees a fixed return, a little risk can go a long way. Creating a comprehensive portfolio is all about knowing the investment opportunities in India and finding a balance that works for you.
Post the IL&FS crisis, liquidity woes have made NBFCs a credit risk, but not for all. Before you completely write off non-banking financial companies in India, it’s important to take into consideration the institutions’ credit rating, assets and liabilities, the buzz about it and its overall stability. Let’s take a look at some of the reasons you should invest in an NBFC today:
- Contribute towards the wealth of the nation- In the past, non-banking financial institutions have performed better than banks and will resume to do so once the storm blows over. They grant access to financial services to the rural, weaker, and underserved segments of the economy including MSMEs that contribute to over 29% of India’s GDP. They have been instrumental in enabling economic development through capital formation and subsequent GDP growth. Although they aren’t the most popular choice currently, they will continue to serve as a relevant part of the economy in the years ahead.
- Fall in stock prices– The liquidity crisis in 2018 resulted in the dip of the stock prices of most NBCFs, making them available at a lower cost. As with equities, investing in an NBFC takes a little knowledge and skill because picking the right company is as important as the time you buy it. This is but a temporary set-back that gives investors the golden opportunity to purchase shares at a low price. Although the credit risk involved has risen, investors continue to cautiously invest in them and expect positive returns.
- Budget 2019– According to the Union Budget of 2019-20, the government will provide a one-time partial credit guarantee to public sector banks to buy high-rated pooled assets of financially sound NBFCs. The inability of a few has not just reflected on but affected the financially sound NBFCs and resulted in an unjustified risk aversion to them. The Union Budget of 2019 established this provision to give investors the assurance that their money is safe non-banking financial companies the opportunity to win back their credibility.
- Risk-Return relationship– When we speak of the inverse relationship between risk and return, we are referring to risk that is calculated, not blind. The risk you take shouldn’t outweigh the potential returns that you stand to gain. NBFCs have become an important part of the economy and have proved their performance in the past. The government has upfronted 70,000 cr to banks as capital support and has allowed NBFC to use KYC from banks to speed up the loan process. This backing research about the company prior to the investment will act as the safety net for your investment. Upfront liquidity support of Rs 70,000cr to banks will benefit NBFCs This not only makes an it a calculated risk but an avenue for substantial returns. The market might be in a slump in the present but that just presents an opportunity for growth for at least the next 15-20 years.
- FinTech shaping the landscape– Banks aren’t the only financial institutions in India that are leveraging tech for growth. Today, it’s digitalization that underpins an NBFCs ability to personalize their offerings and meet the specific need of a larger audience. Data and artificial intelligence are also being used by both NBFCs and their investors to assess the market and stability, respectively. Emerging technology has given NBFCs increased visibility into the journey of the customer and their own processes, enabling improved accuracy and the elimination of manual errors.
All things considered, NBFCs continue to be a great investment option in India that should be part of your portfolio. It is important to assess the financial liquidity of the company you’re investing in and understand their scope of growth. The transparency granted by NBFCs to investors also adds to their credibility.
As an upcoming, diversified NBFC, Capri Global has created the optimal mix of borrowing and lending and are leveraging automation to improve productivity, while also controlling costs. With presence across high-growth segments such as MSME, Construction Finance, Affordable Housing, and Indirect Lending and 1,800 employees across 88 location, the organization hopes to create a solid social impact through the facilitation of flexible and intuitive loan products.