NBFC situation fragile after DHFL, Rel Cap downgrades: Morgan Stanley

Morgan Stanley believes that the situation for NBFCs remains fragile especially following the downgrades of Dewan Housing Finance Corporation and Reliance Capital's subsidiary to D. The brokerage said markets remain concerned about wholesale real estate loans. The foreign firm believes that investors should stick to non-banking finance companies or housing finance companies with strong parentage.

“Following recent downgrades of DHFL and RCAP subsidiaries to D to which banking system had significant exposures and will have to make provisions, banks might look to calibrate exposure to the space and be very selective,” said Morgan Stanley.

Unless mutual funds see a strong surge in inflows, they are unlikely to contribute meaningfully to balance sheet growth at non-banking finance companies or housing finance companies, the firm said. If mutual funds see outflows, there is a risk of further cut in funding to the sector, it added.

Morgan Stanley said entities with strong funding access like HDFC could be disproportionate beneficiaries of any improvement in liquidity conRead More – Source