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What Has the Megatrend Done to Gruh Finance's Secure Business Model? - Views on News from Equitymaster
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  • Sep 20, 2017 - What Has the Megatrend Done to Gruh Finance's Secure Business Model?

What Has the Megatrend Done to Gruh Finance's Secure Business Model?
Sep 20, 2017

I recently wrote an issue of The 5 Minute Wrapup titled - What is Chauffeur Knowledge Doing to Housing Finance Stocks?

My main contention was that some niche housing finance companies, like Gruh Finance, have done phenomenally well over the past three to five years because of their unique moat. Which is why we recommended Gruh Finance, right at the start of the Megatrend cycle, in October 2014.

Businesses can acquire moats like strong brands, distribution networks, etc, with money. But some moats, like the ability to cater to the most un-bankable population, can only be acquired with experience over time.

Most banks didn't see the opportunity in housing credit until it was too late. Plus, they shy away from lending to an unbanked population. Meanwhile, specialized housing finance companies cashed in on the latent demand for housing credit in smaller towns.

While their growth has been spectacular, housing credit in India is still less than a fifth of total bank credit. We are clearly nowhere close to a housing bubble.

However, thanks to the euphoria about them, the stocks of most housing finance companies have run up too much, too soon.

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