Stock Tips: After a spectacular rise in the domestic benchmark index, there was a correction on Tuesday a trading day ago and the Sensex fell below 60 thousand. Nifty also could not maintain its lead. However, if we talk about individual stocks, then investors can get a return of about 22 percent on investment in LIC Housing Finance (LICHF). Brokerage firm Motilal Oswal has fixed its target price at Rs 525. On Tuesday, this stock closed at Rs 437.50 on NSE and Rs 438.20 on BSE. LIC Housing Finance is one of the largest housing financing companies in the country with a huge distribution network.
Festive demand will benefit
In order to capitalize on the increasing demand for homes in the festive season, LIC Housing Finance has given great relief to people with CIBIL score of 700 and above. Now they will get loan up to Rs 2 crore at the rate of at least 6.66 percent. Earlier this limit was up to Rs 50 lakh. Instead of employment, it is aiming to attract more and more people to its side through the strategy of giving loans on the basis of CIBIL score only.
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Expected increase in loan book
During the second wave of Corona, the demand for retail home loans was badly affected due to the lockdown in many parts of the country in the first quarter of the current financial year 2021-22. Although now economic activities are coming back on track, then its demand is going to be better. Brokerage firm Motilal Oswal estimates that the loan book may grow at a CAGR of 11 per cent (Compound Annual Growth Rate) from FY 2021 to FY 2024. Economic activities are improving since June 2021 and the collection efficiency has also improved to 98 per cent which is encouraging.
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Partnership with IPPB will benefit
Recently, a partnership was announced between India Post Payments Bank (IPPB) and LIC Housing to provide home loans to over 4.5 crore customers of IPPB. IPPB has 650 branches and more than 1.36 lakh banking access points across the country through which LIC Housing Finance will get access to maximum number of customers. Apart from this, LIC Housing Finance will also benefit about 2 lakh employees of IPPB who have micro ATMs and biometric devices which will help in disbursing loans.
Capable of raising capital at low rates
With the completion of the allotment of preferential equity to the promoter LIC, the concerns regarding capitalization or leverage of LIC Housing Finance are now over. Now this housing company is able to raise debt capital at lower rates which will help it to keep its margins healthy in the competitive environment. The ROE (Return on Equity) is estimated at 11-12 per cent due to its low cost capital raising ability and favorable housing finance cycle.
Investment Advice on Target Price of Rs 525
The brokerage firm estimates that economic activities may remain affected in FY 2022 and return on asset (RoA) may reach 1.1 percent and return on equity (RoE) 12 percent in FY 2023. Motilal Oswal has a buy call on this stock with a target price of Rs 525 per share based on Estimate of 1.1x FY23E BVPS (Share at Book Value).
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