NBFC situation fragile after DHFL, Rel Cap downgrades: Morgan Stanley
The brokerage said markets remain concerned about wholesale real estate loans.
“Following recent downgrades of DHFL and RCAP subsidiaries to ‘D’ to which banking system had significant exposures and will have to make provisions, banks might look to calibrate exposure to the space and be very selective,” said Morgan Stanley.
Unless mutual funds see a strong surge in inflows, they are unlikely to contribute meaningfully to balance sheet growth at non-banking finance companies or housing finance companies, the firm said. If mutual funds see outflows, there is a risk of further cut in funding to the sector, it added.
Morgan Stanley said entities with strong funding access like HDFC could be disproportionate beneficiaries of any improvement in liquidity conditions in terms of both funding access and cost of funding.
Stocks of HDFC, Mahindra & Mahindra Financial Services and Shriram Transport Finance Corporation are at attractive valuations and offer superior risk to reward, the foreign firm said.
“...funding divergence will continue. Entities with strong parentage/vintage will continue to get growth funding. Among other entities, NBFCs into niche high yielding retail loan segments could see better access to funding via bank loans, securitization and co-origination," the foreign firm said.