This Is Not 2013
The fears of a potential credit contagion has spooked financial stocks over the week particularly Nbfcs and housing finance companies. However, the markets are showing some signs of stability as the BSE Finance index, that includes a gamut of NBFC, HFC, saw a marginal fall of just - 0.19 percent.
BSE Bankex rose 8.58 points as compared to a downdraft in the Sensex of -97.03 points.
In a report, Morgan Stanley India believes that this is not 2013. “India's macro stability is at a different level: Real rates are positive, the current account deficit is range-bound, the fiscal deficit is controlled, and inflation is benign. No doubt there are pressures from rising oil prices and a depreciating currency, but given the macro balance sheet, these are not difficult to handle.”
Morgan Stanley India adds that the rising interest rates is not a new story and certainly not the cause of the recent sell-off.
Financial stocks have come a long way from in the last half a decade. NBFCs are bigger than they were five years ago at 14% of credit (loan book of US$280 billion) vs. 10% in 2013, notes Morgan Stanley.
In the coming weeks, bankers expect the Central Bank and the government to intervene in the credit markets announcing sops and measures to curtail the debt market squeeze. The government already announced lowering the bond borrowings through the open market by Rs 70,000 crore, which is expected to reduce the pressures on the bond markets.
“First half borrowing has been lower than historical average and a likely tempered 2HF19 borrowing program will check 10-year yield from rising significantly from current levels,” said Morgan Stanley.
The RBI earlier announced a small relaxation in SLR requirements to improve liquidity conditions.
However, the rupee remains under pressure and is hovering at around Rs 72.55 in the forex markets. Crude oil is a concern, though. Oil prices surged in the international market to $72 per barrel.
Market men point out if the rupee and crude oil remain range-bound or pull back in the coming months, the pressure on the financial sector could abate in the coming weeks.
