NBFC stocks should be completely avoided for the next six months as the sector is going to see lower growth and profitability, said Suresh Ganapathy, head of financial services research at Macquarie. In an interview with Sanam Mirchandani, Ganapathy said the best way to play the banking space is through corporate banks, which have further room for rally.
Edited excerpts:
The NBFC crisis has deepened and there are fresh concerns on sustainability of their growth. Some have even called it India’s Lehman moment. What is your reading of the situation?
I disagree with people calling it India's Lehman moment. I don't think there is that big a systemic risk emanating out of NBFCs. There are risks at the margin. The banks who have lent to them will incrementally see more slippages and I do see more NBFCs defaulting. India has 11,000 NBFCs. Some of th ..
There is also a debate as to how credit rating agencies failed to highlight risks to these defaulting financial companies. What is your view?
This has been a serious point of concern. Unfortunately, credit rating agencies have been more reactive rather than being pro-active to the entire situation. There has to be more refinement of the rating models. The RBI has to come up with tighter set of regulations and eliminate the conflict of interest. That's the biggest challenge be ..
Do you see value buying in the NBFC space?
The investment in NBFCs has to be decided based on investors’ time horizon. If you are talking about the next six months, my answer is no. For the next 6-12 months, NBFCs will go through a phase of consolidation — lower growth, lower profitability — till the time we reach some steady state which is more than a year away. It is better to avoid all NBFCs even if they look to be value plays. The only way you should buy an NBFC is if yo ..
Do you see further rally in corporate banks?
The rally is still not over. The advantage with some of the corporate banks is that the credit cost normalisation story is a very compelling one and I don't think that there is an issue with respect to that, though there will be at the margin some slippages coming from the NBFC space. These private oriented banks still have enough capital to grow and they can easily gain market share from the PSU banks. RoEs are going to improve a ..
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