Limited Room For Upside In Housing Finance Stocks

The rally in housing finance stocks may have run its course.

The companies have seen a re-rating driven by the optimism surrounding government's measures to boost affordable housing. Bellwether HDFC Ltd. rallied 29 percent so far in 2017, while GIC Housing Finance Ltd. surged as much as 109 percent. That compares to the 18 percent rise in the NSE Nifty 50 Index year-to-date.

Barring Repco Home Finance Ltd., shares of housing finance companies are trading at a premium of between 6 percent to 112 percent to their three-year average price to book value.

The steep valuations leave little room for shares to run up from current levels. Companies including GIC Housing, PNB Housing Finance Ltd. are expected to deliver negative returns of around 15 percent over the next 12 months, based on price targets of analysts tracked by Bloomberg. HDFC, Indiabulls Housing Finance, and Repco Home are expected to deliver gains of under 6 percent. Only Dewan Housing Finance Corp. is seen returning double-digit returns in the next year.

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