 "NBFCs under pressure; Repco Home, DHFL, Indiabulls Housing down over 5%")
Shares of non-banking financial companies (NBFCs) mainly housing finance companies (HFCs) were under pressure with Repco Home Finance, Dewan Housing Finance Corporation (DHFL), Indiabulls Housing Finance and Edelweiss Financial Services falling more than 5% on the BSE in an otherwise firm market.
Can Fin Homes, PNB Housing Finance, Cholamandalam Investment and Finance Company, Mahindra & Mahindra Financial Services, Shriram Transport Finance Company, Ujjivan Financial Services, Reliance Capital and Centrum Capital were down in the range of 2% to 4%. On comparison, the S&P BSE Sensex was up 0.68% or 241 points at 35,403 at 09:54 am.
NBFC’s have been spooked by the IL&FS fiasco and analyst expect higher cost of funds and considerable slowdown in the lending growth for NBFC.
“NBFCs borrowings paced up by 19.1% YoY (v/s credit growth 21.2% YoY) in FY18 resulting into rising leverage. Earlier periods observed liquidity flush with ratings upgrades leading to flourishing of debt markets. This also encouraged the NBFCs to borrow short in a higher interest rate scenario and therefore, in a matter of 6 months’ borrowings from commercial paper (CP) and mutual funds (MFs) proliferated,” the brokerage firm Prabhudas Lilladher said in earnings preview.
While going forward, the quantum of MF funding to NBFCs are expected to slow, the ones with higher reliance could see pressures on incremental funding. Tighter liquidity scenario hampers credit augmentation and hence the same should slow and we expect overall NBFC credit to decline to 15-18% over next two years as against 18-21% over past three years. Said that, the ones with pricing power (ability to pass on to the end consumer), market dominance and stronger ALM stand in a better position to wither the current liquidity crisis, it added.
“The lending reluctance toward NBFCs is expected to continue considering the uncertainty prevailing among capital market lenders on the credibility of rating agencies and the credit profiles of NBFCs. With such reluctance continuing, the source of easy money for NBFCs is limited,” Emkay Global Financial Services said in results preview.
Although the brokerage firm expect that the switch from capital market borrowings to bank borrowings would be rapid, considering the overall cap limits over sector-specific exposures, even banks would be pricing debt accordingly.
India Ratings and Research (Ind-Ra) believes that the steps taken by Reserve Bank of India (RBI) to support systemic liquidity and State Bank of India to offer balance sheet liquidity for NBFCs would help alleviate some of the ongoing tightness in the financial system.
These measures however are likely to bring about a temporary effect. For long-term sustainability, restoration of normalcy in the credit market especially for NBFCs is critical. Additionally, development of alternative sources of financing such as an active securitisation market would be beneficial, the rating agency said in a note.
Among the individual stocks, Repco Home Finance hit a 52-week low of Rs 330, down 11% on the BSE in intra-day trade. It tanked 55% from its record high level of Rs 739 touched on January 8, 2018.
Indiabulls Housing Finance slipped 13% to Rs 789, falling 17% in past two trading days. The stock trading close to its 52-week low of Rs 752 touched on September 21, 2018.
Can Fin Homes, PNB Housing Finance, Cholamandalam Investment and Finance Company, Mahindra & Mahindra Financial Services, Shriram Transport Finance Company, Ujjivan Financial Services, Reliance Capital and Centrum Capital were down in the range of 2% to 4%. On comparison, the S&P BSE Sensex was up 0.68% or 241 points at 35,403 at 09:54 am.
NBFC’s have been spooked by the IL&FS fiasco and analyst expect higher cost of funds and considerable slowdown in the lending growth for NBFC.
“NBFCs borrowings paced up by 19.1% YoY (v/s credit growth 21.2% YoY) in FY18 resulting into rising leverage. Earlier periods observed liquidity flush with ratings upgrades leading to flourishing of debt markets. This also encouraged the NBFCs to borrow short in a higher interest rate scenario and therefore, in a matter of 6 months’ borrowings from commercial paper (CP) and mutual funds (MFs) proliferated,” the brokerage firm Prabhudas Lilladher said in earnings preview.
While going forward, the quantum of MF funding to NBFCs are expected to slow, the ones with higher reliance could see pressures on incremental funding. Tighter liquidity scenario hampers credit augmentation and hence the same should slow and we expect overall NBFC credit to decline to 15-18% over next two years as against 18-21% over past three years. Said that, the ones with pricing power (ability to pass on to the end consumer), market dominance and stronger ALM stand in a better position to wither the current liquidity crisis, it added.
“The lending reluctance toward NBFCs is expected to continue considering the uncertainty prevailing among capital market lenders on the credibility of rating agencies and the credit profiles of NBFCs. With such reluctance continuing, the source of easy money for NBFCs is limited,” Emkay Global Financial Services said in results preview.
Although the brokerage firm expect that the switch from capital market borrowings to bank borrowings would be rapid, considering the overall cap limits over sector-specific exposures, even banks would be pricing debt accordingly.
India Ratings and Research (Ind-Ra) believes that the steps taken by Reserve Bank of India (RBI) to support systemic liquidity and State Bank of India to offer balance sheet liquidity for NBFCs would help alleviate some of the ongoing tightness in the financial system.
These measures however are likely to bring about a temporary effect. For long-term sustainability, restoration of normalcy in the credit market especially for NBFCs is critical. Additionally, development of alternative sources of financing such as an active securitisation market would be beneficial, the rating agency said in a note.
Among the individual stocks, Repco Home Finance hit a 52-week low of Rs 330, down 11% on the BSE in intra-day trade. It tanked 55% from its record high level of Rs 739 touched on January 8, 2018.
Indiabulls Housing Finance slipped 13% to Rs 789, falling 17% in past two trading days. The stock trading close to its 52-week low of Rs 752 touched on September 21, 2018.
| COMPANY | LATEST | PREV CLOSE | LOSS(%) |
| INDIABULLS HOUS. | 823.95 | 908.45 | -9.30 |
| DEWAN HSG. FIN. | 246.10 | 269.55 | -8.70 |
| REPCO HOME FIN | 341.20 | 371.10 | -8.06 |
| EDELWEISS.FIN. | 172.90 | 186.20 | -7.14 |
| JM FINANCIAL | 75.85 | 80.85 | -6.18 |
| MUTHOOT CAP.SERV | 808.10 | 860.20 | -6.06 |
| INDIABULLS VENT. | 428.75 | 451.30 | -5.00 |
| CENTRUM CAPITAL | 42.55 | 44.50 | -4.38 |
| CAN FIN HOMES | 232.20 | 242.30 | -4.17 |
| IL&FS INV.MANAG. | 7.68 | 8.00 | -4.00 |
| RELIANCE NIP.LIF | 159.25 | 165.55 | -3.81 |
| PNB HOUSING | 888.10 | 919.65 | -3.43 |
| MAGMA FINCORP | 105.40 | 109.05 | -3.35 |
| RELIANCE CAPITAL | 258.75 | 267.70 | -3.34 |
| ICICI SEC | 261.75 | 270.65 | -3.29 |
| MAX VENTURES | 50.25 | 51.75 | -2.90 |
| CHOLAMAN.INV.&FN | 1174.95 | 1209.95 | -2.89 |
| M & M FIN. SERV. | 386.65 | 398.05 | -2.86 |
| SREI INFRA. FIN. | 32.45 | 33.35 | -2.70 |
| RELIANCE HOME | 43.00 | 44.10 | -2.49 |
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