Investors build a fortune with housing finance companies

Big banks have long been market darlings. It's the turn of housing finance companiesnow. 

Shares of GIC Housing Finance, Canfin Homes, Repco Home Finance, Gruh Finance, Dewan Housing Finance and Indiabulls Housing Finance have risen between 10% and 50% over the past month as cheap valuations, hope of rate cuts and strong growth potential have prompted large domestic investors to buy into them. 

"Housing finance companies have been the favourites of investors of late because they are the biggest beneficiaries among finance companies as the cost of funds is falling faster than lending rates and a rate cut is expected any time soon," said Santosh Singh, head of research at Espirito Santo Securities Stock Market Trading Tips

"These stocks underperformed in the past two years, though there was no slowdown in the home lending sector." 

Housing Finance has risen more than 50% in the past month, while the shares of Canfin Housing, which hit their lifetime high of Rs 695 on Monday, have surged nearly 37%. Both the stocks are currently trading at 15 times their earnings per share for the trailing 12 months. The market leader, Housing Development Finance Corporation, has moved just 2.7% in the past month, as investors remain neutral on the stock because of its expensive valuation. The benchmark Sensex has risen just 1% in the past month Commodity Trading Tips

"High growth and core profitability are the main valuation drivers for housing finance companies," Kotak Securities said in a report on Friday. Strong growth in housing, due to the government's impetus, and large latent demand will drive 19% compounded annual growth in housing loans through fiscal 2022 to Rs 35 trillion, it said. 

Billionaire investor Rakesh Jhunjhunwala is bullish on the stocks of home lenders, Bloomberg news reported recently. As per available data, he has a 3.89% stake in Dewan Housing. On Monday, CanFin Homes announced a rights issue — three equity shares for every 10 held — of about Rs 275 crore. The issue was priced at Rs 450 per share against the current market price of Rs 617 Nifty Trading Tips