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| NBFCs back in favour with MFs |
| Vandana / Mumbai Oct 05, 2009, 00:29 IST |
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With ample liquidity in the system, non-banking finance companies (NBFCs) are once again a lucrative investment option for mutual funds.
Mutual funds exposure to NBFCs has gone up by over 20 per cent since April, when markets started recovering and fund-raising for companies became easier. NBFCs are one of the favourite sectors for mutual funds for debt investment.
According to the data from fund tracking firm Valueresearch Online, the value of NBFC papers held by fund houses stood at Rs 28,060.41 crore in April. It went up to Rs 34,717.83 crore in August, a 23.72 per cent increase. One of the highest increase in exposure to NBFC papers was registered by LIC Mutual Fund (99.21 per cent) with the total exposure increasing from Rs 2,809 crore to Rs 5,596 crore.
Among other fund houses, UTI Mutual Funds’ investment in debt papers of NBFCs grew by 44 per cent from April to August, followed by Franklin Templeton whose exposure went up by 85 per cent to Rs 2,443.21 crore. Deutsche Mutual Fund’s exposure to debt instruments of NBFCs went up by 122 per cent and Taurus Mutual Fund’s by 381 per cent.
The top NBFCs where mutual funds’ exposure has risen significantly include Bajaj Auto Finance, First Leasing Company of India Limited, Hero Honda Finlease, ICICI Home Finance Company, JM Financial, Kotak Mahindra Investments, Kotak Mahindra Prime, Reliance Securities Limited, Sundaram Finance and Tata Capital Limited. A year ago, at the height of the global financial crisis, the Reserve Bank of India had opened special lines of credit for mutual funds and NBFCs. The liquidity crunch for mutual funds was the result of their high exposure to finance and real estate companies, some of whom had sought an extension in clearing the dues.
Experts said mutual funds seem to have once again gone a little overboard on investing in the sector. One of the main reasons behind fund houses lapping NBFC papers is the revival in the financing business, executives at fund houses said. The other reason being was fixed maturity plans (FMPs) coming back in favour. FMPs invest in CP, CDs and other money market instruments, and NBFC papers are one of the major constituents of any FMPs portfolio. Distributors said fund houses also participated in some of the recent NCD issues.
“The lending business for all major NBFCs has revived and their credit quality is much better than earlier. IPO financing and margin funding too, have come back into the picture wherein mutual funds have become a major source of financing for these businesses. It is also less volatile than gilts. However, there are still concerns on the sector. The important one was the interest rate risk. With interest rates expected to rise during second half of next year, it would again impact margins of NBFCs,” said the CEO of one of the largest distribution houses.
“Indiscriminate exposure to NBFCs is no more there. Having said that, asset quality of some good companies is much better and they have survived well even in financial crisis. The industry has become very careful on ALMs (asset-liability management) and that is where the major risk is. There is a lot of liquidity in the market and there is not much pressure on NBFCs right now. The exposure that MFs have taken are very conservative. There are various criteria that we consider while investing in NBFCs which include financial strength of the promoter, kind of exposure to interest rates and the rating,” said Rajan Ghotgalkar, Country Head and CEO, Principal Mutual Fund.
“The NBFC sector has shown strong resilience. Considering that credit growth with banks is not happening much, NBFCs are the ones which continue to lend, so there is a lot of growth in that sector. Auto financing has picked up because of auto sales having moved up,” added CEO of a large fund house.
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