Mumbai: While foreign institutional investors (FIIs) pumped in a net of over Rs 45,000 crore in Indian equities in the September quarter, they seemed to have actively cut stakes in non-banking finance companies (NBFCs).
A quick look at the stocks where FII shareholdings dropped during the quarter shows three of top five names belong to the NBFC space. They included Indiabulls Housing Finance, VA Tech Wabag, Repco Home Finance and Equitas Holdings.
FIIs reduced their holdings in Indiabulls Housing Finance by 1,071 basis points, VA Tech Wabag by 913 bps, Repco Home Finance by 766 bps and Equitas Holdings by 746 bps.
“FII appetite for NBFCSs is weak, given the repercussions of the Covid-19 pandemic. These stocks were off investors’ radar starting with the IL& FS crisis,” said Mahantesh Sabarad, Head of Retail Research at SBI Capital Markets.
“That said, we have lately seen some of the quality names go through fund-raising exercise, and DIIs (domestic institutional investors) seem to have actively participated in those,” he said.
The Covid-19 pandemic has exacerbated the woes of NBFCs, as the decline in non-bank credit growth, which started in the second half of financial year 2019, continued through fiscal 2020, accentuated first by economic slowdown and then – more vigorously – by the pandemic.
“While the impact of the economic slowdown was expected to be gradual, providing time to build some kind of defence, the impact of the pandemic has been immediate and debilitating,” Crisil said in an August report.
Shares of Indiabulls Housing Finance have been under pressure for a long time, and have eroded more than 55 per cent value year to date. In the quarter ended June, the housing finance company’s net profit dropped 65.5 per cent. The stock is very thinly-tracked and has one ‘buy’, ‘sell’ and ‘hold’ ratings each.
Shares of Repco Home Finance are down 38 per cent the year to date, even as they jumped 19 per cent over the past one month.
On September 8, Phillip Capital maintained a ‘buy’ rating on the stock, citing inexpensive valuations, but said the growth remained uncertain. “Repco faced multiple headwinds like lack of growth in home market, liquidity crisis in NBFC industry and rising delinquencies in the non-salaried segment,” Phillipcapital analyst said.
“As a consequence, the company underwent massive de-rating with one-year forward price to book multiple contracting to less than 1.0 times from a peak of 4 times during FY17,” they said.
For Equitas Holdings too, the stock is down more than 55 per cent year to date. Barring small gains in 2017, when it was listed, the stock has eroded value in every calendar year.
The company recently concluded the initial public offering (IPO) of Equitas Small Finance Bank and the issue, though oversubscribed, saw a tepid response compared with those that hit the market around the same time.
Credit: Stocks-Markets-Economic Times