Shares of CreditAccess Grameen witnessed a sharp decline, dropping 12% to ₹870 on the BSE during intra-day trading today, on November 29, 2024. The downturn came amid heavy trading volumes, with concerns over the company’s asset quality dominating investor sentiment. As a leading NBFC microfinance institution focused on women borrowers, this performance has raised questions for those planning to invest in stocks in the microfinance sector.
Asset quality concerns weigh heavily
CreditAccess Grameen’s asset quality issues are at the forefront of its recent stock performance. Gross Non-performing Assets (GNPA) deteriorated by 100 basis points quarter-on-quarter to 2.5%, while Net Non-performing Assets (NNPA) increased to 0.8%. Delinquencies were most pronounced among newer customers with higher loan velocity, leading the management to revise credit cost guidance to 4.5%-5.0% for FY25, up from the earlier estimate of 2.2%-2.4%.
For those looking to invest in stocks, understanding such changes is crucial to evaluating potential risks and returns.
Goldman Sachs downgrade adds to pressure
In addition to asset quality concerns, a downgrade from Goldman Sachs exacerbated the stock’s decline. The brokerage firm revised its rating from “buy” to “sell” and slashed the price target from ₹1,426 to ₹564, citing structural de-rating concerns. Such negative analyst outlooks can further deter investors planning to invest in stocks, especially in volatile sectors like microfinance.
Broader market context and trading highlights
While the BSE Sensex posted a modest rise of 0.40% during the session, CreditAccess Grameen’s market price plunged, reflecting a disconnect from the broader market trend. Average trading volumes surged threefold, with 1.3 million equity shares traded across the NSE and BSE.
So far in 2024, the stock has seen a steep 46% decline, compared to a 10% rally in the BSE Sensex. This stark contrast highlights the importance of thorough due diligence for those seeking to invest in stocks in sectors facing macroeconomic and operational headwinds.
Company outlook amidst challenges
Despite near-term challenges, CreditAccess Grameen remains optimistic about its medium-term growth. The company aims to achieve a portfolio size of ₹50,000 crore by FY28, driven by its Microfinance and Retail Finance businesses. It also maintains higher provisioning levels to address current asset quality stress, which management believes will mitigate future risks.
While such resilience demonstrates the company’s long-term strategy, potential investors must weigh these plans carefully before deciding to invest in stocks like CreditAccess Grameen.
Invest safely
The recent decline in CreditAccess Grameen’s stock reflects heightened concerns over asset quality and analyst downgrades. However, its proactive approach to addressing these issues and its robust growth targets may appeal to long-term investors. For those exploring opportunities to invest in stocks, thorough analysis and an understanding of the sector’s challenges are vital for informed decision-making.
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