Shares of non-bank finance companies (NBFCs) took a massive beating on Friday, with DHFL amd Indiabulls Housing Finance tumbling around 60 per cent and 30 per cent respectively in intraday trade. DHFL lost Rs 100 billion in the m-cap during the day. However, the stocks recovered partially after the management of both companies allayed investor concerns.
Analysts say the ongoing crisis at IL&FS created a panic and triggered the sell-off in these stocks, as it was feared that an ‘IL&FS-like’ situation was emerging across NBFCs. More specifically, rumour had it that DHFL and Indiabulls Housing Finance could find it difficult to meet their respective loan obligations going ahead.
The contagion spread to the entire banking / NBFC space with Edelweiss Financial, Bajaj Finance, Shriram Transport Finance, M&M Financial Services and Indiabulls Housing slipping 10 per cent – 30 per cent in intraday trade.
“Some of the bad housing finance companies (HFCs) that have exposure to large projects are finding it difficult to recover the funds / money. Thus, the inability to recover the money that could have a bearing on the financials going ahead cast a shadow on the stocks as well. That said, not all companies face this situation. There are companies that have been victimised and have been a part of the fall given the overall negative sentiment. The companies in question – DHFL and Indiabulls – have already made their stand clear and said there is no likelihood of a default on their loans. Their main issue is inability to recover money in stuck projects and cash crisis or loan repayment default,” explains Deven Choksey, managing director, KR Choksey Investment Managers.
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Meanwhile, Indiabulls and DHFL clarified their stand on the issue and assuaged investor concerns, saying they do not face any liquidity crisis and are well placed to meet loan repayment obligations.
"We do not have any exposure with IL&FS. Our fundamentals are strong and we hold a strong liquidity of approximately Rs 10, 000 crore in the system, which equates to six months of cash. Our commercial paper (CP) book shall be about 6 per cent of our total borrowings and the total assets and liability book is over Rs 1-lakh crore. We shall remain cash surplus even after considering repayment till March 2019 of all our liabilities on account of CP, NCD, interest payment, bank dues etc. We are extremely well-matched in case of the ALM position," said Kapil Wadhawan, CMD, DHFL.
Valuation-wise, Ambareesh Baliga, an independent market expert says, most of the NBFC stocks were expensive and he had been advocating investors shift from these counters to PSU banks. "NBFC stocks had been correcting over the past few sessions. However, fund managers may have exited / closed positions in a large number today, which led to a contagion effect across the NBFC segment," he said.
The other reason for the sell-off, analysts say, could be selling my mutual funds that will have to account for potential losses, if any since the (September) quarter is drawing to a close in a few days.
“Mutual funds have an exposure towards IL&FS in some of their debt funds. So, they will have to provide for losses (if any) in the September quarter, as it is drawing to a close. This is creating acute pressure on the stocks. As a result, they are being forced to sell somewhere else. This forced selling in NBFC stocks is creating a ripple effect all over. That said, the selling is definitely overdone,” Choksey adds.
G Chokkalingam, founder and managing director at Equinomics Research agrees. “The selling seems to be overdone and the NBFC stocks should stage recovery soon. They are already off from the day’s low,” he said.