Analysts favour automobile lenders over housing finance companies

Pullback of ~500 and ~1,000 notes will affect non-banking financial companies in many ways. But, the impact could vary within the NBFC segment. While pullback of notes will affect cash collection and working capital cycles of these companies, other factors, too, will impact their performance and financials. Working capital is used for day-to-day operations of companies.

Given the headwinds, it is not surprising then that top players fell between 5 and 11 per cent even as the Sensex recovered most of the lost ground over the past two trading sessions. Those players are Housing Development Finance Corporation (HDFC), Indiabulls Housing Finance (Indiabulls HF), Mahindra and Mahindra Financial Services (MMFS), Shriram Transport Finance Company (STFC) and Cholamandalam Investment and Finance Company. LIC Housing Finance (LIC HF) remained flattish in this period.

Given the correction and short-term nature of pain for automobile NBFCs, analysts favour such stocks over housing NBFCs.

For housing NBFCs, experts say, note pullback could lead to fall in realty prices and, hence, collateral could suffer. In fact, given the cash crunch faced by borrowers such as developers, self-employed individuals and the like, loan quality pressure could rise in the coming months. For developers, projects could get delayed in the interim, which could hurt their repayment capabilities. Thus, housing NBFCs could face pressure on loan growth, profit margins, and loan quality, say analysts. These issues could lead to trimming of loan sizes. Last, with banks getting aggressive in the home-loan segment, housing NBFCs' margins could come under pressure. All these issues could weigh on the stocks of housing NBFCs in the near to medium term, even as their longer-term prospects look decent in light of the vast opportunity in the housing sector.