The pain in non-banking financial companies (NBFCs) is reducing and the time is ripe to look at quality names after the steep correction, experts told Moneycontrol on the sidelines of Wealth Creator Awards 2018.
However, it could be prudent to separate the black sheep or poor quality names from the good ones, they added.
They cited reasons such as repayment of obligations and reasonable valuations as one of the reasons to take a look at such names.
“There was a fear about the ability of these companies to repay their obligations and all NBFCs have honoured their obligations. The situation is improving on that front,” Krishna Kumar Karwa of Emkay said during an interaction.
Interestingly, global research firm CLSA, too, highlighted this fact while stating the risks associated in this space. Most of the NBFCs have been able to rollover near-term refinancing through a combination of bank loans, sell-downs or commercial papers (CPs), it said, adding that the next hurdle to be rollovers in the fourth quarter. However, it is cautious about slower growth rate for NBFCs based on increased cost of funding, among others.
“Growth will remain a challenge for this sector and we understand that at aggregate level credit, NBFC/HFC credit growth can moderate to 10-15 percent over the next 6-12 months after a 20 percent CAGR over the past two years.”
Meanwhile, independent market expert, Ambareesh Baliga, believes there is a buying opportunity in quality names if the market corrects further. “One cannot paint all NBFCs with one brush…in the housing finance companies segment, it is a great opportunity to bet on HDFC and LIC Housing Finance,” he said. But one cannot ignore the short-term liability mismatch as some black sheep names could default.
R Sridhar, CEO at IndoStar Capital, also expressed similar confidence at a panel discussion on 'The NBFC crisis and its implications on the financial service industry'.
"The cyclone has passed without much mayhem... the party will continue," he said. While he did add a word of caution that there could be asset-liability mismatches and leverage-issues which could return on equity of certain NBFCs. He said newer partnerships with financing sources should develop soon.
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