Shares of Shriram Finance rose more than 5 per cent on Friday after Japan’s largest financial institution, MUFG, announced plans to acquire a 20 per cent stake
in the company through a preferential allotment. Investors are keen to understand how the deal could impact Shriram Finance’s business and stock outlook. Should investors buy, should existing shareholders book profits, or is it better to hold the stock for the long term? Here’s what a market expert recommends. MUFG will invest Rs 39,600 crore to acquire the 20 per cent stake at a floor price of Rs 840.83 per share, subject to shareholder and regulatory approvals. At this valuation, the deal implies a price-to-book multiple of around 2 times, which experts have described as reasonable. Moreover, the transaction is expected to be the largest foreign direct investment (FDI) in India’s financial sector to date. MUFG has appointed KPMG India as its lead financial advisor for the deal.
Capital strength and strategic benefits
The entry of a global investor like MUFG brings multiple advantages. Most importantly, it significantly strengthens Shriram Finance’s capital base, leading to an immediate improvement in the balance sheet.
However, the company was already financially strong, with foreign institutional investors holding nearly 49 per cent, while promoters own about 25 per cent.
Shriram Finance Q2 results highlights
Shriram Finance reported strong Q2 results, with improving asset quality and healthy growth in net interest income, indicating solid operating fundamentals. The fresh capital is expected to support long-term growth, expansion of operations, and higher lending capacity.
Board representation and strategic value
MUFG will also have the right to appoint two nominee directors to Shriram Finance’s board. This is expected to bring international expertise, fresh perspectives, innovation, and technology insights, given MUFG’s extensive experience in global banking and financial services.
Shriram Finance remains one of India’s largest NBFCs, with assets under management of around Rs 4 lakh crore and a vast distribution network of nearly 25,000 branches across the country.
Growing foreign interest in Indian financials
MUFG’s investment fits into a broader trend of foreign institutions investing in Indian banks and NBFCs. Recent deals include investments by SMBC in Yes Bank, Emirates NBD in RBL Bank, ISC in Sammaan Capital, and investments by Barber Pinkus and Abu Dhabi Investment Authority in IDFC First Bank.
Stock performance and valuation outlook
Shriram Finance shares have already gained around 55 per cent this year, reflecting strong investor confidence.
Despite the sharp rally, experts believe valuations remain reasonable, especially when compared with peers such as Bajaj Finance, where Shriram Finance appears relatively cheaper.
The NBFC stock Friday surged as much as 5.16 per cent, hitting an intraday high of Rs 914.10 and ended at Rs 905.10, up 4.10 per cent from the previous close, according to the NSE.
Should you buy, sell, or hold the stock now?
Sharing his outlook on ET Now Swadesh, Nirav Vora of JM Financial Services said the MUFG deal is extremely positive from a long-term perspective.
“This investment reflects the growing strength of India’s NBFC sector and the confidence foreign investors have in Indian companies,” he said.
Vora added that his team had earlier recommended Shriram Finance around Rs 600–650, with a target of Rs 865, which has already been achieved.
However, he advised some profit booking in the short to medium term, given the sharp rally. Over the long term, he expects re-rating potential to continue, supported by earnings growth in upcoming quarters.
“Investors should adopt a buy-on-dips strategy and continue to accumulate the stock from a long-term perspective,” Vora said.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
