₹10,000 invested in SBI Cards during IPO is worth about ₹6,700 now— here’s why
- The shares of India’s second largest credit card issuer are down by over 33% since listing.
- There is growing fear of default by those with credit card debt in India as coronavirus lockdown has brought business to a standstill and threatens large-scale unemployment.
- However, it is backed by the country’s largest bank, which is owned by the government.
- There is headroom for long-term growth as there are only 4 credit cards for every 100 persons in India.
The lockdown to contain the spread of Covid-19 novel coronavirus has brought business to a standstill and threatens large-scale unemployment. Investors fear that this may lead to defaults by credit card owners and therefore, SBI Cards, India’s second largest credit card issuer is being dumped in the stock market.
Just about a month ago, before the coronavirus pandemic engulfed the world, the prospects seemed very robust for SBI Cards. And that was one of the reasons why some of the biggest mutual fund houses bet big money on the company in March 2020.
|Mutual Fund House||Investment in SBI Cards in March 2020|
|Aditya Birla Sunlife||₹134 crore|
Firsty, it is backed by the country’s largest bank, which is owned by the government.
Secondly, there is a huge headroom for long-term growth as there are only 4 credit cards for every 100 persons in India. That’s an abysmally low and the penetration level can only go up from here.
It is expected that the total credit card spend in india would exceed ₹15 lakh crore (over $200 billion) in the next five years. And SBI Cards can corner a huge chunk of this market waiting to explode.
India’s credit card market is controlled by four companies— HDFC Bank, SBI Cards, ICICI Bank, and Axis Bank in the descending order of market share— who together control two-thirds of all credit card debt.
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The Narendra Modi government has been in favour of non-cash transactions and that is a big advantage for companies like SBI Cards. “Specially e-commerce industry has helped the growth of credit card usage and spending in India which is expected to grow in near future will boost the growth of credit cards as well,” a report from KR Choksey Securities explained.
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