Rating Agencies Re-Affirm Highest Ratings For DHFL
Purportedly triggered off by a relatively inconsequential sale of DHFL bonds by a leading Asset Management Company, Friday’s fall only confirms that the markets are still heavily spooked by the debt defaults from cash-strapped IL&FS a few days back.
Barely a quarter ago, CRISIL, an S&P Global company, had also reaffirmed its A1+ on the mighty lender; stating that “the rating continues to reflect DHFL's strong market position in the housing finance segment and its healthy asset quality, reflected in low gross non-performing assets (NPAs) of 0.96% as on March 31”
What’s more, the business posted a net profit growth of 35% (to INR 435 crore) for the quarter ended June 30, 2018, with PBT rising by 43% to INR 638.2 crore. Their loan book outstanding grew 33% to INR 1,00,980.50 crore during same period, and their Assets Under Management (AUM) by 37% year-on-year, reaching INR 1,20,939.50 crore as on 30th June from INR 88,235.70 crore a year ago. DHFL’s well-diversified core portfolio comprises mainly of retail loans, with an average ticket size of just 16.1 lakhs.
The puzzling question is – why would the stock of a creditworthy, profitable, and high-quality business that’s operating in a clearly high-growth potential segment, take such a drubbing?
If anything, Friday’s thoughtless fire-sale of shares of DHFL poses much deeper and disconcerting questions about the fundamental state of the domestic equity markets today. With the NIFTY’s price to earnings ratio hovering at 2008 like levels, it’s likely that retail as well as domestic investors are on tenterhooks; hypervigilant of any cues that could potentially topple the house of cards that has thus far sustained itself on the back of impressive domestic liquidity more than anything else.
With DHFL becoming a value stock on Friday, we’ll probably see a v-shaped recovery in the stock over the next few trading sessions. The dark forebodings of Friday’s panic sale are going to a little bit harder to brush off, though! At a strategic level, It may well be a prudent move for equity-overweight investors to rebalance their portfolios at this stage.
