Stocks of housing finance companies have seen a turnaround in fortunes in the domestic market after the Budget.
Shares of companies like IndiaBulls Housing Finance, GIC Housing Finance, DHFL, among others, have gained as much as 16% on the bourses during this past week. This was in contrast with the trend in their one-year performance that showed some of these stocks declining up to 39%.
Catalyst for the Turnaround? The finance minister's resolve to stick to the 3.5% fiscal deficit target for FY17 has sparked speculation of an immediate rate cut by the RBI.
Secondly, the Budget showered a lot of incentives on the layman under the government's affordable housing push to encourage home buying. First-time home buyers will get deduction of additional interest up to Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17, where the cost of the house does not exceed Rs 50 lakh.
Parag Thakkar of HDFC Securities said this would benefit the housing finance companies. "Under the affordable housing scheme, if somebody takes a loan of Rs 12 lakh and pays interest of Rs 1,40,000 to an NBFC, he gets a Rs 50,000 rebate. Effectively, his net interest cost comes down from 12% to 8%," he said.
"Across the entire lending industry, housing finance has been one of the least problematic segments in terms of asset quality and has suffered the least from bad loans, as most financing is still done for first-time home buyers," said Haitong Securities.
Prabhat Awasthi, MDat Nomura India, is positive on the housing finance companies and expect them to deliver well after the sops announced in the Budget. Haitong Securities' top picks include HDFC and DHFL.