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Value investor- India mid & small caps

Bhaskar Chakraborty

Thematic (Sector/Industry)

India Financials / Thematic (Sector/Industry)

<p>We interacted with a few companies over the past week to gauge the current liquidity scenario. These include an infrastructure player, a tire maker and two NBFCs. The following are the key takeaways-</p><ul>
<li>Buyers’ credit has shrunk sharply in the aftermath of the PNB scam involving Nirav Modi and Gitanjali Gems.</li>
<li>Bank credit availability has shrunk sharply for below AA-rated corporate entities in the aftermath of IL&amp;FS default. Some NBFCs with AAA or AA-rated credit have faced challenges in getting bank credit given the perception of weak corporate governance.</li>
<li>NBFCs without strong parentage and those with lower credit ratings are resorting to securitization to raise liquidity. However, buyers will negotiate larger haircuts in such portfolio purchases.</li>
<li>Mutual Funds are not investing in NBFC paper after IL&amp;FS defaulted. However, NBFCs with strong parentage have been able to garner ECBs from overseas arms of Indian banks as well as been able to tap the Commercial Paper market in October.</li>
<li>Banks, on their discretion, are holding back disbursements in pre-approved credit lines.</li>
<li>This liquidity tightening will impact demand and capex unless addressed soon.</li>
</ul>

We interacted with a few companies over the past week to gauge the current liquidity scenario. These include an infrastructure player, a tire maker and two NBFCs. The following are the key takeaways-
Buyers’ credit has shrunk sharply in the aftermath of the PNB scam involving Nirav Modi and Gitanjali Gems.
Bank credit availability has shrunk sharply for below AA-rated corporate entities in the aftermath of IL&amp;FS default. Some NBFCs with AAA or AA-rated credit have faced challenges in getting bank credit given the perception of weak corporate governance.
NBFCs without strong parentage and those with lower credit ratings are resorting to securitization to raise liquidity. However, buyers will negotiate larger haircuts in such portfolio purchases.
Mutual Funds are not investing in NBFC paper after IL&amp;FS defaulted. However, NBFCs with strong parentage have been able to garner ECBs from overseas arms of Indian banks as well as been able to tap the Commercial Paper market in October.
Banks, on their discretion, are holding back disbursements in pre-approved credit lines.
This liquidity tightening will impact demand and capex unless addressed soon.


AU Small Finance Bank Limited (AUBANK IN)

India: Corporate Liquidity Tightness Shows No Signs of Abating