Analysts say the markets have been caught in a contagion of a sell-off in banking and NBFC segments
Puneet Wadhwa | New Delhi Last Updated at September 24, 2018 14:22 IST
Indian equity markets extended their slump for the fifth consecutive session as financial stocks continued to tumble amid the ongoing crisis at IL&FS. The S&P BSE Sensex hit an intra-day low of 36,239 levels, while the Nifty50 touched a low of 10,946 levels.
Analysts say the markets (S&P BSE Sensex is down over 800 points in two sessions) have been caught in a contagion of a sell-off in banking and NBFC segments, which can accentuate further. Moreover, factors such as rate hikes by the US Federal Reserve, crude oil prices, rupee and trade relations between US and China will also have a bearing on the overall sentiment.
“Market correction was overdue given the stretched valuations. With oil on the boil and rupee levels, it was just a matter of time for the markets to take cognizance. Developments related to IL&FS, however, were foreseen. The current market movement is more of a contagion and has led to a risk-off phase now. The Nifty50 can dip another 500-points from here on in a worst-case scenario,” says Tirthankar Patnaik, India Strategist, Mizuho Bank.
Vinay Khattar, associate director and head of research at Edelweiss, too, believes that the markets are headed down in the near-term.
“The Nifty50 index can slip to 10,000 – 10,100 levels given the ongoing crisis at IL&FS and the macro headwinds in the form of rupee, oil prices that are putting pressure on the fiscal situation. The pain would be felt most by rate sensitive stocks and the mid-and small-cap segments. Investors should clearly avoid these two and look at safe-havens of fast moving consumer goods (FMCG), pharma and healthcare sectors,” he advises.
BANKS & NBFCs
Among individual stocks in the NBFC segment, Bajaj Finance, Indiabulls Housing Finance, Reliance Home Finance, Central Bank of India, Cholamandalam Investment and Finance Company and Ujjivan Financial Services were down in the range of 5 per cent to 15 per cent on the National Stock Exchange (NSE) in intra-day trade on Monday.
Despite the headwinds, analysts at Macquarie believe good quality, large NBFCs like HDFC with well-matched ALM (asset liability management), strong brand and ability to raise ECBs (external commercial borrowing) and public deposits can weather these transient storms.
“LIC Housing Finance, Shriram Transport Finance and Cholamandalam Investment and Finance may face near-term liquidity issues given their negative ALM gaps (based on FY18 disclosures). HDFC, Indiabulls Housing Finance and Muthoot Finance appear to be better placed. We like HDFC among large NBFCs, HDFC Bank among banks and ICICI Bank, as a play on the stressed asset recovery cycle,” wrote Suresh Ganapathy of Macquarie in a co-authored report with Nishant Shah and Akash Nainani.
Analysts at Kotak Institutional Equities agree. NBFCs with strong parentage i.e. sovereign/ large financial institutions like LIC Housing Finance, Power Finance Corporation (PFC) and REC and business houses like Aditya Birla Finance, Bajaj Finance, Cholamandalam, Mahindra Finance, will continue to earn support from debt markets and banks, they said.
“Underlying business trends in most asset classes (CVs, rural auto and retail housing) have been robust over the past few quarters. Supported by our thesis of strong fundamentals and business trends of NBFCs under coverage, we prefer to look beyond near-term volatility and find value gradually building up in select stocks,” wrote Nischint Chawathe, M B Mahesh and Dipanjan Ghosh of Kotak Institutional Equities in a recent co-authored report.
First Published: Mon, September 24 2018. 14:11 IST
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