Moneycontrol Bureau
UBS believes housing finance companies (HFCs) will be the biggest beneficiaries among non-banking financial companies (NBFCs) as cost of funds may fall faster than lending rates. The firm expects wholesale rates to further decline, with 10-year G-Sec rates touching 6.5 percent by March 16 (versus 7.9 percent now) which may translate into 100-150 basis points (bps) decline in banks' lending and deposit rates.
With easing liquidity and lower inflation, wholesale rates have fallen faster than retail term deposit rates with 3 year AAA rates declining by 130 basis points year-to-date (YTD). This, according to UBS, will benefit HFCs the most.
“Mortgage growth has remained resilient for leading HFCs and we expect growth to remain strong at 19-20 percent over FY16-17E. Loan growth in non-mortgage segment has been subdued but this should pick up in H2FY15/FY16. This coupled with improvement in margins would boost earnings growth of HFCs,” it says in a report.
UBS expects HDFC's earnings (standalone) to improve from 15 percent CAGR over FY12-14 to 20 percent CAGR in FY16-FY17E. It has upgraded ratings on the stock with a revised target price of Rs 1300.
Among others, LIC Housing Finance is its preferred pick with a new target price of Rs 550 per share. Falling interest rate cycle and likely improvement in mortgage spread favour the stock.
UBS has also upgraded ratings on Indiabulls Housing Finance to 'BUY' with revised target price Rs 575 respectively on favourable business cycle.
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