In times of fear, investors punish the most expensive stock first, preferring to book profits. Consumer lending behemoth Bajaj Finance is facing this situation.

For the September quarter (Q2), the lender reported superior growth in assets under management (AUM), its margins were healthy and asset quality pristine. One would expect the performance to underscore the valuation the stock commands.

Yet, the stock fell 2% after the release of the results on Tuesday and settled about 1.5% lower for the day.

Analysts blame it on the valuation being expensive and they would be right.

Despite the stock having lost a huge 23% since September, when serial defaulter Infrastructure Leasing and Financial Services Ltd (IL&FS) triggered a widespread aversion towards every non-banking finance company (NBFC), the stock trades at a rich multiple of six times its estimated book value for FY19.

To be fair, Bajaj Finance reported a stellar growth of 63% in AUM for Q2 and the growth is broad-based. Indians are unlikely to let go of the convenient equated monthly instalments (EMI) in buying various durables and this reflects best in Bajaj Finance’s fresh loans. The company added two million borrowers during the quarter, growing its pool of fresh loans by 63%. Gross bad loans are still near 1.5% of the loan book although they rose 43% from a year ago.

But the key question is on asset liability management. Here too, the company seems to be fairly comfortable. The lender and its mortgage subsidiary have raised a total of 5,392 crore from the money markets, despite being surrounded by a liquidity squeeze. Moreover, the company’s cost of funds hasn’t surged, indicating that refinancing is not difficult for Bajaj Finance.

By December, the company has to repay 4,728 crore worth of borrowings and the management said it can comfortably access funds.

“We have not seen any elevated levels of cost on the commercial paper side," said Rajiv Jain, managing director of the company. Jain added that the increase in cost of borrowings through commercial paper has been about 30 basis points, which is on expected lines during a rising interest rate scenario.

That said, the share of Bajaj Finance’s short-term borrowings has gone up to 11% by September from 8% in March. The company hiked its deposit rates twice this month and, given the rising share of deposits in its borrowings, the pressure on margins is palpable.

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