Mortgage Loans: It is a type of loan where any assets are kept as a security against the loan. In Mortgage Loans, the biggest factor available in India is Housing loans.
Looking minutely over this sector, if we consider Housing Finance Companies, which are completely focused towards Home Loans only.
Here we will be discussing the supporting parameters of this factor.
i) Covid-19 Surge:
- During this period Loans that are not backed up with any securities or assets can face some difficulties.
- But, in the case of Home Loans, Financial Institutions always have such kind of assets in the form of a mortgage.
- Rising Covid-19 cases can help these sectors.
- There may be a declaration of NPA in this sector also but ultimately companies under this sector do not need to do high provisioning as there are large assets with them that can be further monetized. But this condition does not apply to Banking or NBFC companies.
- Simply, In comparison with NBFC and Banking Institution level of risk is low is Housing Finance Institution.
ii) Urbanization/ Nuclearization:
- In India, the Joint Family concept is getting outdated and the trend of small families is building up.
- The development of Nuclear Family Culture is also contributing towards increased demand for Housing.
iii) Housing for All:
This sector is also getting benefits from the Government Programme of Housing for All by the year 2022.
iv) Other favorable factors:
- Increasing Per Capita Income in India.
- Increasing Disposable Income.
- Demographic Dividend
- In India, the penetration of Mortgage Loans is around 12.4%.
- While Mortgage Loan Penetration in the USA is more than 62%, in the UK it is more than 67%, in China Mortgage Loan Penetration is more than 26%, in Malaysia, penetration is around 44%, and South Africa is also having a penetration of more than 20%.
- The above number suggests that this mortgage loan penetration can also go up in the future.
- If we assume that India will be among the Top-3 Companies by 2050, then certainly there will be a healthy per capita income, good disposable income, and this mortgage-based loan will also increase.
- Furthermore, this existing percentage of mortgage loan penetration will also increase and which indicates the availability of organic growth in this sector.
Currently, the market share of Housing Finance Companies is around 40% whereas 40% market share is still with Public Sector Banks.
Looking at the momentum in banks where there is shifting of market share from Public Sector Banks to Private Sector Banks, the same can happen in Housing Finance Sector also.
3 Stocks to keep on Radar:
i) HDFC Ltd.: Market Leader in the Sector
ii) LIC Housing Finance: Backed by solid player LIC. Attractive Valuation.
iii) Aavas Financiers
As discussed Housing Finance Sector is the sector where natural growth persists. The market penetration of Mortgage Loans is very low which is expected to grow in the future. One should keep the stocks recommended on their radar. Also, the Quarterly results of these companies should be analyzed very well. The stock name provided is not direct advice rather it’s just a recommendation and one should do their due diligence before investing in these stocks.