Stocks of NBFCs have been on a free-fall, ever since the IL&FS crisis unfolded. Commercial papers of Dewan Housing Finance Company that were sold at a sharp discount in the secondary market triggered the massive sell-off. This has raised a wider concern over the liquidity problem for NBFCs. The stock of Dewan Housing Finance Company continued to plummet, losing over 20 per cent last week. The rising concerns over liquidity crunch, impacting growth and profitability of NBFCs, have weighed on these stocks.
Given that many NBFCs have wide asset-liability mismatch, the concerns have exacerbated. Even if a full-fledged liquidity crisis does not unfold, the profitability of NBFCs may come under pressure, as their cost of funds will increase, impacting profitability. Given the sharp run-up in stock prices of NBFCs over the past two to three years, there could be more pain ahead for investors.