MFs Retain Exposure to NBFC Debt Despite Turmoil, but Move to Less-risky Players
ET Intelligence Group: The spectre of asset-liability mismatch in several non-banking finance companies (NBFC) three months ago has prompted mutual funds (MFs) to realign their debt exposure by giving preference to less risky lenders. Contrary to the general perception, they have not cut exposure to the sector.
The total MF exposure to debt instruments with maturity of under three months was more or less stable at .₹ 1.9 lakh crore in the December 2018 quarter compared with the previous quarter, according to Credit Suisse. It suggests that most of the short-term debt issued by NBFCs has been rolled over.
MFs increased exposure to NBFCs such as Bajaj Finance, Capital First, L&T Finance Holdings, PNB Housing Finance, Mahindra & Mahindra Financial Services and Hero FinCorp in the range of 5-75% in the past three months. They reduced exposure to DHFL, Indiabulls Group, IIFL, Edelweiss Financial Services, and JM Financial by 7-11% of the total debt exposure since September 2018. This would necessitate the latter group to raise funds at a higher cost by issuing long-term debt instruments.
On the other hand, quality NBFCs benefited from tapping the MF route to move further into the short-end of borrowings. Sebi has stipulated a limit of 40% to a sector for the debt mutual funds. It was 33% at the end of December 2018, according to Credit Suisse.
The share of liquid and money market funds in the total fixed income increased by 380 basis points to 39.1% in December 2018, according to AMFI. As a result, the total fixed income assets under management grew 2% in the past three months to .₹ 11.4 lakh crore.