Other Financial Services share price target

We have highlighted the list of regulatory changes that hit the diversified financials space recently and their valuation multiples (link). This report is an extension on the same under the context of (1) removal of indexation benefits on non-equity MFs and (2) ~25% increase in securities transaction tax (STT) on derivative segments.

We highlight the impact of regulatory headwinds on our coverage universe (diversified financials) in this note. We have mentioned the list of regulatory impacts for the respective segments in table 1. The moot question is whether the valuation multiples in the past underestimated these regulatory risks, or are current valuations overestimating the impact of these challenges?

MFI sector continued to strengthen its position as one of the important lending segments, more importantly, from a regulatory standpoint. In a landmark judgement, Telangana High Court on 14th Feb’23 directed states that they cannot control or implement any other regulation as microfinance entities are already governed by the RBI and thus, dual regulatory framework is not advisable.