Investors still fear NBFCs: 2 Indian funds' assets fell 50% in Dec quarter

Over 50% of assets under management erased in December quarter

Indiabulls Asset Management and DHFL Pramerica Mutual Fund have seen their assets plunge by more than half in the December quarter. That shows fears of India’s non-bank finance companies still linger.

The dwindling in assets is the most among any mutual-fund company in India during the period, data compiled by Bloomberg show. While flows to the industry have slowed recently because of heightened market volatility and political uncertainty ahead of elections due by May, it also suggests investors continue to shun risk months after defaults by an infrastructure lender shocked India’s non-bank finance companies.

“Institutional investors have been pulling out of debt funds that hold a high exposure to papers of their NBFC parent or from schemes with high NBFC exposure,” said Vidya Bala, Chennai-based head of mutual fund research at Wealth India Financial Services Pvt., which runs FundsIndia.com.

DHFL Pramerica’s ultra short-term fund last month held 34 percent of its assets in bonds sold by the troubled mortgage lender Dewan Housing Finance Corp., according to Bala. The fund saw its assets plummet from 20 billion rupees ($281 million) in August to 3.6 billion rupees in January, she said. Dewan has been in the eye of the storm since September in the wake of defaults at Infrastructure Leasing & Financial Services Ltd.

The flight to safety following the IL&FS crisis “is a transient phenomenon and the business will return to normalcy as sentiments improve,” DHFL Pramerica said by email. The fund’s assets were skewed toward debt, leaving it vulnerable to the exit of large investors, it said.

Indiabulls Asset’s institutional business recovered in January, with money in cash funds doubling from November, Associate Director Raghav Iyengar said by phone. The mutual fund held 37.3 billion rupees in assets at the year-end, according to data compiled by Bloomberg.

Dewan is in the process of selling its entire 50 percent stake in the fund venture to partner Pramerica Financial. The fund’s assets totaled 107.6 billion rupees as of Dec. 31.