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Sector News

Housing finance companies rally up to 5% as Sebi raises MF exposure

Jun 09, 2023

Housing finance companies rallied upto 5% on Thursday after market regulator Sebi raised mutual funds additional exposure to home finance companies to 15% from existing 10%. Though these norms benefit housing finance companies (HFCs) in terms of lower borrowing cost, HFCs which are currently facing pressure of lower lending rates and rising bond yields, will continue to see margin pressure due to reprising of loan book, said analysts.

While Deewan Housing stock gained 5% intraday, Gruh FinanceBSE -1.51 % shares rose as much as 4%. GIC Housing and Repco Finance shares jumped over 3% on Thursday. However most of the HFCs stocks pared their intraday gain and ended in red in the flat overall market. 

“The changes in norms will provide some relief to HFCs borrowing cost, however HFCs facing pressure of lower lending rates, rising bond yield, continue to see margin pressure due to re-prising of loan book” said Morgan Stanley note. 

In an attempt to promote the housing sector, Sebi has increased the limit for mutual fund investment in debt papers of HFCs from 35% to 40%. This will, according to industry estimates, would open up Rs 35,000-40,000 crore of additional liquidity for HFCs through mutual funds. 

“Given the strong pool of liquidity opening up for the sector, we expect incremental cost of funds to drop by 20 bps in the short term and 15 bps at the longer end” said Alpesh Mehta, banking analyst, Motilal Oswal Financial Services. "The benefit, however, may be lower for HFCs which are nearing the overall cap limit of 10% of each schemes exposure". 

About 20% of the housing portfolio of large HFCs could be higher than Rs 50 lakhs ticket size which could be impacted because of the fall in interest rates and this situation will increase pressure on HFCs, which have been facing a slowdown in core housing loan portfolio growth, said analysts.