Fall in NBFCs, HFCs panic-driven, no fundamental damage in companies

Sudip Dugar Stewart & Mackertich Wealth Management Currently, there is a fear among market participants about the liquidity crunch in the system. Valuations for non-banking financial companies (NBFCs) and housing finance companies (HFCs) are also at a premium. The details coming out suggest a number of NBFCs had been using short-term borrowings for long-term lending. This has created an asset liability management mismatch, which has further created panic. A lower rate of interest and their easy rollover attract financing companies to short-term borrowings. It also gives the companies to take advantage of any fluctuations in the interest rate. The growth rate in NBFCs and HFCs are at an all-time high, surpassing the credit growth rate of banks. The area tapped by them, mainly in the rural and semi-urban India, will be difficult for banks to capture. This current situation is more panic-driven than any due to any fundamental damage. Companies with strong financials and management will continue to grow. However, the events that have taken place will be an eye-opener for the sector and could bring in updated rules and regulations from the Reserve Bank of India. Instead of assuming that majority of the loan book of NBFCs are of low quality, it is necessary to understand the specific sector exposure. Companies having good quality assets and strong asset liability management coupled with high corporate governance will continue to stand out among its peers. Disclaimer: The author is Research Analyst at Stewart & Mackertich Wealth Management. The views and investment tips expressed by investment expert here are his own and not that of the website or its management.

Courtesy By: https://www.moneycontrol.com

Date: 2018-10-17 19:14:46