Debt MF exposure to NBFCs falls 24.43% in November: Sebi data

Mutual funds invest in debt instruments of NBFCs, which include short-term instruments like commercial papers (CPs) and long-term debt papers like non-convertible debentures (NCDs).

Debt mutual funds continued to cut back on debt instruments issued by non-banking financial companies (NBFCs). Debt mutual fund exposure towards the NBFC sector fell by 24.43% year-on-year (y-o-y) in November 2019 to Rs 1.83 lakh crore. Investments by debt funds in NBFC paper were lower by Rs 81,867. 82 crore since July 2018, when the NBFC crisis began.

Debt mutual fund exposures towards short-term debt instruments of NBFCs like commercial papers (CPs) stood at Rs 86,701.34 crore lower by 32.05% lower by y-o-y, while exposures towards corporate debt which includes instruments like floating rate bonds and non-convertible debentures (NCDs) witnessed a fall of 13.65% over the previous year at Rs 97,102.9 crore, according to data published by Securities and Exchange Board of India (Sebi). Mutual funds invest in debt instruments of NBFCs, which include short-term instruments like commercial papers (CPs) and long-term debt papers like non-convertible debentures (NCDs).

Market participants say that reduction in sectoral exposure by Sebi towards NBFC and housing finance companies (HFCs) from 40% to 30%. Dwijendra Srivastava, CIO-Debt at Sundaram Asset Management Company, says, “Investors are still staying away from investing in NBFCs having wholesale lending to sensitive sector like real estate, infrastructure or power. Having said that, NBFCs having retail focus continue to attract money.”

In October, Sebi in its circular had capped sector exposure limit to 20% from 25% and additional exposure limits provided for HFCs in financial services sector has been capped at 10% as against 15%. In November 2019, debt funds invested Rs 4.07 lakh crore in corporate debt papers, which floating rate bonds, non-convertible debentures, etc.

Market participants say that that demand of debt papers issued by NBFCs have fallen in the last one year after several defaults and downgrades in the sector. “Leaving top few NBFC names who are retail lenders, fund houses have reduced their investments in wholesale lending NBFCs. The NBFC sector has been reeling under the pressure of tight liquidity and a crisis of confidence as there has been defaults and downgrades in NBFC sector in the past one year,”said a fund manager on condition of anonymity. While debt funds have reduced their exposure in NBFC papers, they have increased their exposure in government securities, bank certificate of deposits and PSU Bonds, shows the data from Sebi.