Shares of non-banking financial companies (NBFCs) have been under pressure following concerns on tightening liquidity, asset liability mismatches (ALM) and a cut in lending by banks.
However, the latest report by Investec Securities said most top NBFCs have fair liquidity and strong balance sheets and comfortable ALM positions. They also have a decent capital position, diversified borrowing and predominantly retail asset books.
“We anticipate pressure on profitability for HFCs, but believe that a sharp stock price reaction is unwarranted,” the report added.
After the recent slide in the NBFC space, shares of the companies plunged up to 84 per cent from their respective 52-week highs.
Data available with Ace Equity showed that Coral India Finance and Holdings, HB Stockholdings and Nagreeka Capital declined over 80 per cent from their year’s high. A couple of known names, including Dewan Housing Finance Ltd, Reliance Capital, Motilal Oswal Financial Services, Reliance Home Finance and Indiabulls Housing Finance, also slipped 30-55 per cent from their 52-week highs.
Mahindra & Mahindra Financial Services, Equitas Holdings, Muthoot Capital and Shriram City Union Finance and PNB Housing Finance also dropped up to 30 per cent from their 52-week high levels.
Emkay Global Financial Services in a report said, “The lending reluctance for NBFCs is expected to continue. Though we expect low probability for default (due to timely RBI intervention), we would continue to prefer NBFCs with favourable ALM maturity.”
Emkay further said HFCs (except HDFC) are adversely placed on a maturity profile with liabilities maturing at faster pace compared with assets. For DHFL, around 12 per cent of liabilities (around 17 per cent of market borrowings) are maturing in 3 months against 9 per cent of total assets (3 per cent advances).
Asset financing companies, or AFCs, are better placed with an exception of Cholamandalam Finance with around 15 per cent of liabilities (14 per cent of market borrowings) maturing in 3 months against 7 per cent of total assets (7 per cent advances). Shriram Transport also has adverse ALM mismatch with faster liability maturity.
It further said Bajaj Finance is best placed with around 12 per cent of liabilities (13 per cent of market borrowings) maturing in 3 months against 18 per cent of total assets (18 per cent advances). Additionally, MMFS and HDFC Limited also have a favourable ALM maturity.
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