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In the post IL&FS crisis environment when everybody is cautious could be the best time to invest in credit risk funds, said Nimesh Shah, MD & CEO of ICICI Prudential Mutual Fund, in a panel discussion at ETMarkets Global Summit.
“The debt industry is now fully prepared to take whatever crisis comes. Last one year has separated men from boys. Our belief is credit space is the best place to be in,” Shah added.
Shah also asserted that credit spreads have never been better. “NBFC whose risks are well-spread are good options.”
Shah along with Kalpen Parekh, President of DSP Mutual Fund blamed investors for not doing due diligence before investing in the papers of those companies that went bust.
“Whenever somebody is aggressively lending, they create problems five years down the line. When entire infrastructure was under pressure, IL&FS stood out. Did anyone question that? If you would have done your due diligence you would not have taken the losses,” Shah said.
Parekh was of the opinion that irrespective of ratings, most companies have been going through their own crisis. “NBFC grew at a rapid pace after the banks stopped lending money. We like to chase returns until risk plays out. But it changes when risk plays out.”
Parekh wondered why no panel discussion happened when the NBFC industry was still growing.
Sandeep Thapliyal, MD & CEO of Avendus Finance said that NBFCs compromised on classic asset liability principle and paid the price.
Coming to the defence of mutual fund industry, Shah said some schemes of some MFs had a problem and not everyone was affected. He blamed the crunch in the real estate industry as the root of all problems. “Since the industry could not pay NBFCs, they could not pay MFs.”
Alka Anbarasu, Vice President – Senior Credit Officer at Moody’s Investors Service sees a glimmer of hope.
“Earlier, NBFCs were not willing to maintain enough liquidity. Now, they are changing. They are trying to diversify their sources of funding so they are not dependent on just one,” she said.
Anbarasu considers NBFC crisis as one of the key reasons behind recent outlook downgrade by Moody’s.
On good stocks in the NBFC space, Thaplial said that companies such as Bajaj Finance, which have a solid parental backing, gained from the misadventure. “There is a flight to quality as governance is coming at a premium, which is good. There are NBFCs not linked to real estate, but are still facing issues, but overall, good NBFCs are getting money,” he added.
On the outlook for the sector, Shah said the pain was not over for the real estate sector as more NPAs could surface. “Only good thing is that this time the industry is prepared,” he said.
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