Rs 25K cr booster dose a welcome move but insufficient for NBFCs: Experts

Real estate developers such as Indiabulls Real Estate, Sobha, Oberoi Realty and Godrej Properties rallied up to 5 per cent in the opening deals on Thursday, a day after the Union Cabinet approved the setting up of a Rs 25,000 crore alternative investment fund (AIF) to revive around 1,600 stalled housing projects across top cities in the country. 

At 09:55 am, shares of Indiabulls Real Estate were locked in the upper circuit band of Rs 70.20, up 5 per cent on the NSE. Sobha was trading over 3 per cent higher at Rs 448 while Oberoi Realty was up over 1.50 per cent at Rs 512.80. Nifty Realty index was trading over 1 per cent higher at 277.70 levels. In comparison, the benchmark Nifty50 index was trading flat at 11,987, up 21 points or 0.17 per cent. 

Reacting to the development, most non-banking financial companies (NBFCs), too, gained in the trade. While Indiabulls Housing Finance was trading around 11 per cent higher at Rs 242.95, Edelweiss Financial Services was frozen at the 5 per cent upper circuit band of Rs 105.60. Shriram Transport Finance Company was up over 2 per cent at Rs 1,157.95 apiece on the BSE. 

The AIF will be a special window to provide priority debt financing for completion of projects in the affordable and middle-income categories, Finance Minister Nirmala Sitharaman said. CLICK TO READ FULL REPORT
 

The Cabinet decision is a modification of an earlier stimulus package announced by the FM in September, when she had kept NPA and insolvency projects out of the AIF purview. 

While the government will act as a sponsor with its Rs 10,000 crore initial contribution to the category-II AIF, State Bank of India (SBI) and Life Insurance Corporation of India (LIC) will provide an additional Rs 15,000 crore for the fund, that will be managed by SBI Cap. The open-ended fund is expected to swell over time as several sovereign and pension funds are in discussion with the technical management team to join in, Sitharaman said.

Sharad Mittal, CEO & Head at Motilal Oswal Real Estate Funds, said, "It's a positive move for the liquidity starved real estate sector. Rs 25,000 crore will be good amount to address the chronic situations. Though one need to see the modalities on implementation, time is of essence in delayed projects."

HOW POSITIVE IT IS FOR NBFCs?

Though it is a welcome move, it is insufficient to help bring about a substantial change in the NBFC sector, as a whole, feel analysts. 

"Companies which are in rural segments or operate in low-cost realty projects such as LIC Housing Finance, GIC Housing, and Repco Home will definitely benefit from this measure but firms such as Indiabulls Housing Finance, DHFL, and HDFC, are unlikely to reap the benefit," said AK Prabhakar, Head of Research at IDBI Capital.

"The Rs 25,000 crore special window to provide funding to housing projects that are stuck are a very welcome move considering that many projects stuck for want of funding will now see completion. The NBFC sector will definitely see some traction with projects now getting ready for sale. However, a point to consider is that liquidity for the NBFC sector to capture the demand will still remain big factor," said Ravikant Bhat, Research Analyst at IndiaNivesh Securities. 

Analysts at Kotak Securities find the move directionally positive for NBFCs, especially the ones focused on real estate loans. "Establishment of such a large fund indicates the government’s intent to support the sector which bodes well for lenders. Not only does this support resolution of real estate NPLs/NCLT cases and NBFCs that are struggling on liquidity to fulfill their commitments, other lenders (banks and large/well-funded NBFCs) can constructively start looking at the sector," they wrote in a note dated November 7.  

However, they further said that the effective execution remains crucial.