Hello fellow investors
My thoughts on CanFin and other HFCs in general are that housing finance will most likely see subdued growth in share price in the near future because
Interest Rate cycle seems to have bottomed out with multiple indicators (such as Inflation, Crude prices, rate increase by US FOMC) pointing towards likely increase in rates by RBI.
Increase in competition with many new private lenders in the market and older players such as ICICI, SBI going aggressive on retail loans such as home loans.
Valuations multiples have increased. 3-4 Years back most HFC were trading at 1-2 times book value but now so many are trading st more than 3-4-5 times book value.
All of the above factors can work simultaneously can cause a strong slowdown especially 1) interest rate cycle.
I remember Mr Basant Maheshwari saying once in an interview on TV that the demand of housing is very elastic, in the sense many people defer housing purchase decisions based on price. So there will always be bunching of demand in a space of few years.
It is interesting also to compare the trends in the period from 2010 to 2013 when RBI had continuously increased repo rate from ~4% to ~8%.
If news of reduction of interest rate by Can Fin to start from 8.5% is true it is a further indicator that margins are getting squeeze and therefore profitability on existing loans will fall.
However in the long term I am very bullish on HFC since mortgage market in India is very under penetrated and a combination of good volume growth, good NIM and control over credit costs means a steady compounder of book value. I only feel it will be wise not to buy at the current time.
Disclosure- I am holding small position in CanFin which I bought in 2017.