Mutual Funds’ exposure to NBFC debt papers falls 22% in October

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Mumbai | Published: November 12, 2019 1:56:25 AM

Non-banking financial companies (NBFCs) might continue to reel under the pressure of tight liquidity as debt mutual fund exposures towards the sector fell 21.7% year-on-year (y-o-y) in October 2019 to Rs. 1.86 lakh crore.

MFs invest in debt instruments of NBFCs, which include short-term instruments like CPs and long-term debt papers like NCDs.

Non-banking financial companies (NBFCs) might continue to reel under the pressure of tight liquidity as debt mutual fund exposures towards the sector fell 21.7% year-on-year (y-o-y) in October 2019 to Rs. 1.86 lakh crore. Investments towards debt paper issued by NBFCs were lower by Rs. 79,500 crore since July 2018, when the NBFC crisis began.

Debt MF exposures towards short-term debt instruments of NBFCs like commercial papers (CPs) were the lowest in CY19 so far at Rs. 90,369 crore and lower by 42% y-o-y, while exposures towards long-term instruments like non-convertible debentures (NCDs) witnessed a fall of 14.3% over the previous year at Rs. 95,829 crore, according to data published by Sebi. MFs invest in debt instruments of NBFCs, which include short-term instruments like CPs and long-term debt papers like NCDs.

Market participants believe the reduction in sectoral exposure limits by the regulator for exposures towards NBFC and HFC debt papers has led MFs to cut their individual exposures. “The adjustment seen in mutual fund investments into NBFC debt papers is by large on account of reduction of sectoral investment limits for NBFCs to 20% from 25%,” said Kumaresh Ramakrishna, chief investment officer – Fixed Income, PGIM Mutual fund. Sebi also had capped debt MF exposures towards HFCs at 10% from 15%.

In October 2019, largest proportion of funds of debt assets under management (AUMs) were invested in corporate debt papers worth Rs. 4 lakh crore. This segment includes floating rate bonds, non-convertible debentures, etc. Compared with the previous month, assets in this category improved marginally by Rs. 3,100 crore, according to CARE Ratings.

NBFCs and HFCs witnessed an increase in their cost of borrowing from the debt markets in October. According to a CARE ratings report, AAA rated NBFCs could pick up funds at an average yield of 8.73% in October, highest in the past five months, while HFCs could raise funds at an average yield of 7.97%, highest in the past three months.

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