Why HDFC, LIC Housing Shares Are Under Pressure

Shares of majority of the Housing finance companies were trading in negative on Tuesday after the Securities and Exchange Board of India (SEBI) lowered mutual fund's additional investment limit in the debt papers of the housing finance companies to 5 per cent from earlier 10 per cent.

Shares of HDFC, the biggest private sector housing finance company fell as much as 1.34 per cent to touch a low of Rs 1147.15. While the shares of LIC Housing Finance, the biggest public sector housing finance company, fell 1.8 per cent to touch a low of Rs 491.5. Shares of Repco Home Finance fell as much as 3.34 per cent to touch a low of Rs 626.15.

Housing Finance Companies are highly dependent on bond markets to raise funds therefore this move is likely to impact their fund raising capabilities. Housing Finance companies raise 33-75 per cent of their funds through corporate bond market. Due to lower limit mutual funds will be investing lower amount in the debt papers of the housing finance companies.

"In the shorter term it may have some impact but looking at the growth of mutual fund's AUM (asset under management), in the longer term it should even out," said V Raghu, executive director at Repco Home Finance, told NDTV.

According to Mr Raghu the SEBI regulation will result in Rs 50,000 crore reduction in mutual funds inflows to housing finance company's bonds. However, looking at the current growth rate of mutual fund AUMs, the difference will be offset soon, he added.

As on 11 a.m., Shares of HDFC were down 1.31 per cent at Rs 1147.5 while shares of LIC Housing Finance were trading at Rs 493.9, down 1.33 per cent. Shares of Indiabulls Housing Finance were down 1.14 per cent at Rs 727.40 while the broad market indicator, Sensex, was down 0.43 per cent.