Affordable housing finance offers better returns but limited growth: Macquarie Capital

Suresh Ganapathy, a Banking Analyst at Macquarie Capital Securities, said that while housing finance companies (HFCs) like Bajaj Housing are currently profitable, it will be tough for them to grow bigger due to the lower profits in mortgage lending. He added that affordable housing finance offers better returns but has limited growth potential.

In an interview with CNBC-TV18, he also talked about how rising deposit costs are affecting banks and non-banking financial companies (NBFCs). He expects interest rate cuts in December and thinks deposit issues may ease by the second quarter of 2024.

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Ganapathy mentioned that they are positive on LIC Housing Finance, AB Capital, and Shriram Finance. However, he warned against sectors like credit cards and microfinance institutions (MFIs) and suggested being selective with investments in housing finance and consumer lending NBFCs.

Discussing rate cuts, he said that since October to November is a festive season, and January to March is usually a busy time, it is unlikely that any interest rate cuts will happen before March. “We might see a cut in deposit rates only after March.”

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“And that is why it didn’t make any sense for the Reserve Bank of India (RBI) to even cut rates because it is not going to transmit in the form of lower rates in the system. So, that is how we should look at it,” Ganapathy added.

When asked about the impact of HDB Financial Services’ listing on HDFC Bank’s valuation, he said that HDB Financial Services’ contribution will be small because HDFC Bank already has a large market value. Even if HDB’s valuation doubles to $5-6 billion after listing, it won’t make much of a difference compared to HDFC Bank’s $150 billion valuation.

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“So, it doesn’t move the needle and there are other subsidiaries which also have a great value. So, in that sense, HDB listing, while, of course, it is sentiment positive, it does not really move the valuations for HDFC Bank in a big way, unlike for Bajaj Finance and Bajaj Housing Finance,” he added.

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