What a Bigger MF Debt Exposure Means for HFCs
Cap on debt papers increased to 40%, move can open up ₹ 35,00040,000 cr of additional liquidity for HFCs
Mumbai: Housing finance companies rallied up to 5% on Thursday after market regulator Sebi raised mutual funds’ additional exposure to these companies to 15% from the ex- isting10%.Thoughthesenormsbenefit housing finance companies (HFCs) in terms of lower borrowing cost, HFCs which are currently facing pressure of lower lending rates and rising bond yields, will continue to see margin pressure due to reprising of loan book, said analysts.
While the Dewan Housing Finance stock gained 5% intraday, Gruh Finance shares rose as much as 4%. GIC Housing and Repco Finance sharesjumpedover3%onThursday. However, most of the HFC stocks paredtheirintradaygainsandended in the red in an overall flat market.
“Thechangesinnormswillprovide some relief to HFCs borrowing cost, however HFCs facing pressure of lower lending rates, rising bond yield, continue to see margin pressure due to reprising of loan book,” said Morgan Stanley in a note.
Sebi has increased the limit for mutual fund investment in debt papers of HFCs to 40% from 35% in an attempt to promote the housing sector. This will, according to industry estimates, open up ₹ 35,000-40,000 crore of additional liquidity for HFCs through mutual funds.
“Given the strong pool of liquidity opening up for the sector, we expect incremental cost of funds to drop by 20 bps in the short term and 15 bps at the longer end,” said Alpesh Mehta, banking analyst at Motilal Oswal Financial Services.