Concerns relating to global recession triggered by the ongoing coronavirus epidemic have rattled stock markets around the world. Growth forecasts have been revised downwards and after sharp market corrections, valuations have come to record low levels. Global policymakers have also been responding to the crisis with unprecedented level of monetary as well as fiscal stimulus. Though the Indian government has been doing a commendable job to counter the coronavirus epidemic by imposing a countrywide lockdown at the right time, the impact of it would be severe on the government’s balance sheet. This would lead to a higher fiscal deficit, fall in revenue collections, increasing government support in the form of an economic package, etc from a medium term perspective. But in my view, I think the most important sector which the government should focus immediately is to do an Asset Quality Check of various NBFCs’ portfolios which could possibly get impacted due to the coronavirus outbreak and economic disruption. Due diligence of the asset quality of small NBFC and banks, micro finance institutions, construction and infra companies should be taken on a war-footing before things go out of hand; otherwise, there could be intermittently rise in non-performing assets. Any sharp deterioration in asset quality among corporates, small and medium enterprises and retail segment will lead to pressure on capital and profitability and ultimately lower stock prices. Apart from lives lost and unemployment, the sectors which will be most vulnerable economically to the disruption from the coronavirus pandemic and the 21-day lockdown imposed by the government would be real estate, steel, construction, airlines, gems and jewellery, automobile dealers, etc. Debt capital remains a challenge as lenders are only comfortable with certain NBFCs and access to funding remains constrained for other smaller ones. The real estate sector, which is the largest job employer in the country, has been witnessing increased stress for the last few years on the back of tight liquidity conditions, unsold inventories, delay in project execution and excessive leverage. Many housing finance companies have mushroomed over the years, but HDFC Ltd stands out as the lone star with an impeccable pedigree and blue chip status. HDFC is the country’s premier housing finance company and the promoter of HDFC Bank and many other listed entities. Domestic and foreign financial institutions love this stock and have been investors in this company for many decades. The coronavirus outbreak around the world has triggered massive selling by foreign institutional investors in blue chip companies. Therefore, the HDFC stock has also not been spared with the price declining from around Rs 2,200 odd levels to Rs 1,500 in a matter of two weeks in March 2020. Since then, the stock price has climbed to Rs 1,700 levels in the last one week. From a valuation perspective, the HDFC stock looks attractive at the current price for investors to accumulate the stock in their portfolio for long term superior gains.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.
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