L&T Finance is a long term buy

L&T Finance is a long term buy

By Rajiv Kapoor | 8 April, 2017

L&T Finance Holdings Ltd offers a range of financial products and services across rural, housing and wholesale finance sectors, as well as mutual fund products and wealth management services through its wholly-owned subsidiaries, viz., L&T Finance Ltd, L&T Infrastructure Finance Company Ltd, L&T Investment Management Ltd, L&T Capital Markets Ltd and L&T Housing Finance Ltd. It is promoted by Larsen & Toubro (L&T), one of the leading companies in India with interests in engineering, construction, electrical and electronics manufacturing and services, and IT and financial services. India is undergoing rapid expansion both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The banking regulator has allowed new entities such as payments banks to be created recently, thereby adding to the types of entities operating in the sector. However, the financial sector in India is predominantly a banking sector, with commercial banks accounting for a majority of the total assets held by the financial system. The government has introduced several reforms to liberalise, regulate and enhance this industry, while the Reserve Bank of India (RBI) has taken various measures to facilitate easy access to finance for micro, small and medium enterprises (MSMEs). India is the fifteenth largest insurance market in the world in terms of premium volume and has the potential to grow exponentially in the coming years. Life insurance penetration in India is very low, with just 3.9% of the GDP, but a fast growing economy, rising income levels and improving life expectancy rates are some of the many favourable factors that are likely to boost growth in this sector in the future. On the other hand, the investment corpus of the pension sector is expected to cross US$1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA). India’s digital payments industry is expected to grow by 10 times to reach US$500 billion by 2020 and contribute as much as 15% of the GDP. Fundraising through Initial Public Offering (IPO) in 2016 was at a six-year high of Rs 20,217 crore.

The company continues to focus primarily on three key areas—rural, housing and wholesale loans. It is also making conscious efforts to reduce its cost income ratio, thereby increasing profitability. The L&T Finance stock currently quoting at Rs 120 is a long term buy for solid gains.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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