Financials, AMCs under pressure; Bajaj Finance, HDFC AMC down over 5%

Shares of financials including banks, non-banking financial companies (NBFCs), housing finance companies, micro finance institutions, and assets management companies (AMCs) were under pressure, falling up to 10 per cent on the BSE after Franklin Mutual Fund (MF) shut 6 of its debt schemes over redemption pressure and liquidity crunch.

Individually, Nippon Life India Asset Management, Cholamandalam Investment and Finance Company, Ujjivan Financial Services, Mahindra & Mahindra Financial Services, Bajaj Finance, HDFC Asset Management Company, L&T Finance Holdings and LIC Housing Finance Company were down in the range of 5 per cent to 10 per cent on the BSE.

Meanwhile, ICICI Bank, IndusInd Bank, Bajaj Finserv, Shriram Transport Finance Company, IDFC First Bank, Axis Bank, ICICI Prudential Life Insurance Company and Housing Development Finance Corporation (HDFC) were down 4 per cent each.

Nippon Life India AMC, Cholamandalam Investment, Ujjivan Financial, M&M Financial, Bajaj Finance, HDFC AMC, L&T Finance Holdings and LIC Housing were down in the range of 5% to 10% on the BSE.

At 10:16 am, the S&P BSE Finance and S&P BSE Bankex were down 2.9 per cent and 2.6 per cent, respectively as compared to a 1.5 per cent decline in the S&P BSE Sensex.

According to a Business Standard report, Franklin Templeton Mutual Fund (MF) on Thursday decided to wind up six of its debt schemes oriented towards high-yield investments -- with a combined asset base of Rs 25,856 crore -- citing continued redemption pressure and lack of liquidity in the debt markets amid the lockdown and the coronavirus pandemic. 

“In the current environment, it has been difficult to generate liquidity, especially for credit papers, which are low on the credit curve,” said Sanjay Sapre, president at Franklin Templeton MF.

As the cost of generating liquidity in such funds would have had a negative impact on the existing investors, the fund house decided to take the call. “Significantly reduced liquidity in the Indian bond markets for most debt securities and the unprecedented levels of redemptions following the Covid-19 outbreak and the lockdown have compelled us to take this decision,” Sapre said. READ REPORT HERE

Last week, credit rating agency S&P Global Ratings had cut its outlook to 'negative' on Axis Bank and ICICI Bank asserting that the Covid-19 pandemic will lead to deterioration in asset quality for Indian lenders. It had also lowered its outlook to ‘negative’ on Shriram Transport Finance Company, Bajaj Finance, Manappuram Finance, Muthoot Finance and Power Finance Corporation.

"Indian banks face increasing risks stemming from challenging operating conditions following the Covid-19 pandemic. We expect a flattish U-shape economic recovery. Risks remain on the downside and could lead to few banks being downgraded," the agency said.

“We expect Indian banks' asset quality to deteriorate, credit costs to rise, and profitability to decline. We have revised the economic risk trend for the banking system to negative from stable. Other banking industry scores are not affected. While Indian banks are not entering this slowdown from a position of strength, they have been on the recovery path for the past 12-18 months. The economic slowdown will defer the improvement by a year, in our opinion,” S&P Global Ratings said in a statement dated April 17, 2020.