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No reason for panic in housing finance companies, experts say

Some of the banking as well as housing finance companies stocks saw severe beating today which dragged the markets down. Among housing finance companies, Dewan Housing Finance (DHFL) stock was the worst performing.

No reason for panic in housing finance companies, experts say

Today was one of the most volatile days for stock markets. The Sensex opened at 37,278.89 which rose to 37,489.24 during initial hours of the trading but soon it took a great plunge of 1,495.6 points and crashed to the low of 35,993.64. Later on it recovered some lost ground and closed at 36,841.60 registering a fall of 279.62 from the day's opening.  

Some of the banking as well as housing finance companies stocks saw severe beating today which dragged the markets down. Among housing finance companies, Dewan Housing Finance (DHFL) stock was the worst performing. Today DHFL share opened at the price of Rs 615.60 and saw a huge decline of 42.43% and by the end of the day it closed at Rs 351.55. Many other HFC stocks also fell to record low level during the day. HFC stocks such as Indiabulls Housing Finance cracked 14.84 per cent, Reliance Home Finance fell 18.30 per cent, Gruh Finance fell 17.66%, Repco Home Finance dropped 12.08 per cent, PNB Housing Finance saw a fall of 9.23%, LIC Housing Finance fell by 14.84 per cent and Bajaj Housing Finance saw a fall of 19.96% per cent.

As per media reports, the selloff in DHFL was the primarily triggered by a rumour that DHFL is likely to see a downgrade in its debt papers as one of the prominent mutual fund house sold papers worth Rs 200-300 crore of DHFL at discount. The market feared of a poor liquidity in the debt market. This triggered a major selloff in housing finance companies and Dewan Housing Finance was one of the worst affected.  However, experts feel there is no reason for panic and housing finance companies are in a good position.

"This is one kind of an impact that has happened and I don't see anything that has changed overnight for housing finance stocks which could justify such correction," Rahul Shah, Vice President, Group Leader-Equity Advisory, MOFSL. "I don't see any pain in the papers of the good rated companies. Mostly they are very strong, or have very strong parents," he added.

Experts believe that IL&FS default has also dented the sentiments regarding the liquidity conditions in the market. But these are short-term volatility and investors shouldn't worry about it.  "The uncertainty surrounding future of IL&FS and therefore liquidity conditions are souring sentiment. Though these issues appear to be transient they can be a source of significant volatility in the short term," said Vinay Khattar, Head, Edelweiss Investment Research.

DHFL CMD Kapil Wadhawan has come out with clarifications that the company has no exposure to IL&FS Group and the debt papers of the company haven't seen any downgrade. "Our borrowing is well diversified with a banking consortium of 31 banks, NCDs, CPs, ECB and masala bonds. We are one of the deposit taking HFC with a public Deposit portfolio of Rs10803 crores. Our ratings on any of our debt instruments or fixed deposits are neither under watch nor there is any down grade in the existing credit rating. DHFL enjoys high credit rating of CARE AAA (Triple A) and has been assigned BWR AAA from Brickworks Rating. There is also no regulatory issue or concern with respect to the company," said Mr Wadhwa in a press release.

He also clarified on the asset quality of the company. "Our Asset quality is strong and we have registered lowest NPAs in the industry and have reported Gross Stage 3 Loan Assets (equivalent to Gross NPA%) at 0.93%. The testimony of our investor's trust in the organization was proven by 3 successful NCDs," he added.

In terms of asset quality majority of Housing finance companies are better placed than some of the troubled banks which are grappling with the non-performing assets (NPAs) problem. Housing finance companies lend with tangible collateral and their NPAs are much lower than most of the banks. One of the best performing banks HDFC had a gross NPS of 1.30 per cent in the quarter ending March 2018 so DHFL with less than one per cent of gross NPA does not appear to be bad. The gross NPA of many other HFCs barring a few like HUDCO, are well within the reasonable range and less than 2% while many of the troubled banks have registered gross NPAs in double digits.

Therefore, there is no apparent reason for investors who have invested in HFCs to get into panic. You may utilise this correction to review your exposure into HFC stocks and build up your positions in good HFC stocks, believe experts.

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