Rating announcements on Edelweiss, Shriram firms to add pressure on debt MFs

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In a transfer that might lead to extra ache for debt mutual funds, score company ICRA Ltd on Wednesday downgraded a number of Edelweiss Group corporations, whereas earlier this week Shriram Group corporations had been put below “ratings watch negative” by IndiaRatings, which means that there may very well be a doable downward score motion going forward.

These rankings actions come at a time when debt mutual funds, particularly the credit score danger funds, have been witnessing redemption pressure following the shut down of six Franklin Templeton Mutual Fund debt schemes final month.

Edelweiss firms that had been downgraded on Wednesday embrace Edelweiss Finance and Investments Ltd, Edelweiss Custodial Services Ltd, Edelweiss Retail Finance Ltd, Edelweiss Finvest Pvt Ltd, Edelweiss Housing Finance, Edelweiss Asset Reconstruction Company, Edelweiss Rural and Corporate Services Ltd and Edel Finance Company. The bulk of the downgrades had been from a score of AA- to A+. However CRISIL and CARE proceed to fee a number of of those corporations at AA-. On 30th April, CARE Ratings had revised its outlook on non-convertible debentures of Edelweiss Financial Services Ltd from secure to unfavourable however maintained its score of AA-.

Mutual funds have a collective publicity to these Edelweiss Group corporations of round 3,300 crore as of 31st March, in accordance to information from Pulse Labs, a mutual fund analytics supplier.

According to information as of 31st March, mutual fund publicity is especially excessive in Baroda Credit Risk Fund (11.25% of belongings), Baroda Dynamic Bond Fund (9.15% of belongings) and UTI Ultra Short Term Fund (8.49% of scheme belongings) which have debt issued by Edelweiss Rural and Corporate Services Ltd. UTI Credit Risk Fund had a excessive publicity to Edelweiss Retail Finance (9.84% of scheme belongings)

“The rating downgrade action takes into account the increased stress in the wholesale portfolio, leading to a deterioration in the asset quality, and the consequent impact on the financial performance,” ICRA mentioned.

The Shriram group corporations put on “ratings watch negative” by IndiaRatings embrace industrial car financier Shriram Transport Finance, shopper loans supplier Shriram City Union Finance and mortgage lender Shriram Housing Finance. The three corporations presently have a score of AA+, AA and AA respectively. To ensure, a rankings watch doesn’t essentially translate right into a downgrade.

IndiaRatings cited restricted visibility on the influence of the measures taken by authorities to cease Covid 19 pandemic on the businesses in query.

“Micro, small and medium enterprises (MSME) and two wheeler loans could be among the asset classes that could face higher impact in light of their weaker customer profile,” mentioned the rankings observe.

According to Rupeevest, a web based mutual fund platform, as of 31 March, mutual funds have an publicity of 6,111 crore to Shriram Transport Finance debt and an publicity of 3,689 crore to Shriram City Union Finance Debt.

Franklin India Short Term Income Plan and Franklin India Credit Risk Fund had the best publicity in rupee phrases to Shriram Transport Finance and each schemes have been frozen, pending the winding up course of. In phrases of proportion of belongings, publicity in them was 11.64% and 10.79%, respectively.

“The commercial vehicle finance segment is facing a lot of headwinds. Even a downgrade without a default can cause mark-to-market losses. Investors could think of switching to corporate bond funds or liquid funds, depending on their time horizon. Corporate bond funds typically hold at least 80% of their corpus in AAA papers,” mentioned Kalpesh Ashar, founder, Full Circle Financial Planners and Advisors.

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