Housing finance companies (HFCs) that enjoyed high margins due to a fall in the cost of funds and high-yielding non-housing loan portfolio will now face compression as property prices correct and banks give stiff competition through loan rate cuts.
Religare Capital Markets Ltd estimates that the high-yielding loan against property and developer loan portfolio, which has increased over the past two years by as much as 30% for some firms, will now decelerate as property prices could correct by 20-25%.
Moreover, heavily tilted towards wholesale funding sources, HFCs may find it difficult to maintain the rate advantage over banks.
“We believe that a large portion of deposits flooding banks during the demonetization drive are transient and will move out of the system rapidly, pushing up G-sec yields,” said Religare in a note.
This would limit a further reduction in wholesale costs, thereby shrinking the competitive home rate advantage of HFCs to banks, besides eroding their growth and compelling some HFCs to compromise on margins.
Moreover, most banks have cut lending rates by a huge margin, making home loans cheap.
Fundraising by internet firms at three-year low
Private funding raised by internet companies is declining and fell to a three-year low in the December quarter, according to a Jefferies Research report.
Only $263 million was raised in the quarter while funding for the full year 2016 declined by more than 50% to $2.7 billion. Jefferies expects that greater focus on profitability and consolidation will continue to be the main themes in 2017 as well. It cites fintech and online content as two segments to look out for.
Demonetization may affect the results of the listed companies in the sector during the quarter, as the cash crunch is expected to have hit both consumption and small businesses.