Housing finance and power finance companies are likely to have better time going ahead while finance companies engaged in the retail sector may see moderation in demand growth, a research report by Avendus Securities said on Monday.

Housing finance companies may see higher net interest margin (NIM) during the second half of the current financial year on the back of higher asset re-pricing coupled with stable borrowing cost, the report said.

“Higher asset re-pricing during H2 of FY13 along with stable borrowing costs are likely to drive a rebound in spreads from the September quarter,” the report said.

The NIM of major housing finance companies like HDFC and LIC Housing Finance had witnessed a drop of 0.4 percent and 0.36 percent respectively on sequential basis (June quarter over March quarter) due to higher cost of funds.

The report also said that business momentum for the housing finance companies would remain strong.

“Business momentum is likely to remain strong, aided by stable competition. Contrary to perception, competition in the Indian mortgage industry is unlikely to increase due to the absence of any large new companies entering the market and re-alignment of rates across borrowers,” the report said.

As regards power finance companies, the report said that possible government action was likely to improve their asset quality.

“After nearly two quarters of higher slippages and restructuring, asset quality remained stable during June quarter. Easing concerns on the high losses of ailing state electricity boards (SEBs) and likely government policy action … may aid the sentiment for power financials,” the report said adding that valuations of these companies remain attractive.

Referring to growth in finance companies that lend to retail segment like loans for autos and consumer durables, it said the growth rate may moderate in future.

“An increase in tilt towards retail loans, amid a slowdown in corporate loans within banks, is likely to raise the competitive intensity in the commercial vehicle (CV) financing segment. A growth in competition and fall in volume growth of new CV sales may drive a moderation in loan growth for retail financials,” the report said.

(This article was published on August 20, 2012)
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