The recent sell-off in the shares of non-banking financial companies (NBFCs) and housing finance companies (HFCs) has been so severe that some of the sector constituents are currently trading at a discount of over 50% when compared to their 52-week highs.
While companies such as Reliance Home Finance, Dewan Housing Finance Corporation, Can Fin Homes and GIC Housing Finance have seen their share price halve compared to their highs, many such as Manapurram Finance, LIC Housing Finance, Indiabulls Housing Finance, IIFL Holdings, Edelweiss Financial Services and Shriram City Union Finance have suffered 30% to 40% erosion.
The recent past has seen concerns related to liquidity primarily at IL&FS, which has led to investors turn wary of the whole sector. The market has been abuzz with talks of defaults at some other listed NBFCs as well. However, some have clarified that they have not defaulted on any payment obligations.
“There can be no smoke without fire and the entire sector comprising housing finance companies and NBFCs has taken a pounding,” said Arun Kejriwal of Kejriwal Research and Investment Services.
“It is apparent that there is some mismatch between asset and liabilities. The worst may be over but it will take quite a time for business as usual for these entities,” said Mr. Kejriwal.
Reliance Home Finance and Dewan Housing Finance Corporation have been the worst hit. Both are down by over 56% compared to their highs. DHFL, which hit a high of ₹690 on September 3, closed at ₹300.70 on Tuesday after losing nearly 24%. As part of its attempts to assuage investor concerns, the company issued a statement on Monday, that there has been no default or delay in its repayment obligations.
Indiabulls Housing Finance — whose stock lost nearly 5% on Tuesday — was able to raise funds from the market in the last few days. In the last three working days, the mortgage lender has raised ₹2,250 crore from five mutual funds, including ₹500 crore through commercial papers at 8.36% on Tuesday. In addition, the lender completed its public bond issuance of ₹2,000 crore on Tuesday.
“Indiabulls was able to raise fund through the rate that is applicable to any AAA-rated company. The market is comfortable lending to the company as the company holds cash of around ₹25,000 crore at any point in time,” said a person familiar with the developments.
In a note released last week after concerns emerged at IL&FS, domestic brokerage IIFL said that some NBFCs would not be able to roll over their short-term positions. If they raise funds at higher rates, then the margins would be impacted, the brokerage firm said.
Capital raising issues
“There are concerns over short-term liquidity in the market for commercial papers raised by NBFCs. Further, there is also an uncertainty about the ability of certain NBFCs to raise capital,” stated the report while adding that margin calls could trigger further sell-off .
Some of the listed brokerages have also been hit during the sell-off. Motilal Oswal Financial Services (down 53.82%), JM Financial (down 49.86%), IIFL Holdings (down 36.57%) and Edelweiss Financial Services (down 36.20%) are currently trading way below their 52-week highs.