Aavas, HUDCO: Shares of housing finance firms zoom up to 11%; here's why

Shares of housing finance companies (HFCs) mainly mid and small-sized were in focus and rallied up to 11 per cent in Tuesday’s intra-day trade after the Union Cabinet approved a government aid for constructing 30 million houses under the Pradhan Mantri Awas Yojana (PMAY).

Home First Finance Company (up 11 per cent at Rs 961.60), Aavas Financiers (9 per cent at Rs 1,893), GIC Housing Finance (8 per cent at Rs 238.55) and Housing & Urban Development Corporation (HUDCO) (8 per cent at Rs 289.90) rallied over 7 per cent. While, Can Fin Homes, Indiabulls Housing Finance and Star Housing Finance were up in the range of 2 per cent to 3 per cent. In comparison, the BSE Sensex was up 0.24 per cent at 76,673 at 11:39 am.

The Union Cabinet in its first meeting under the chairmanship of Prime Minister Narendra Modi on Monday approved government assistance for the construction of 3 crore houses under PMAY. The government of India is implementing the PMAY since 2015-16 to provide assistance to eligible rural and urban households for the construction of houses with basic amenities.

The move is positive for small housing finance stocks, as the government announced a revamped affordable housing scheme, extending benefit to home finance companies, according to analysts.

The growing Indian economy will lead to a rising middle class population and provide a secular opportunity for Housing Finance. Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka, which, comprises around 60 per cent of the total affordable housing finance market in the country.

Among individual stocks, Home First Finance Company surged 11 per cent to Rs 961.60. The stock has bounced back 24 per cent from its recent low of Rs 778.

The company's main business is financing by way of loans towards affordable housing segment in India and is primarily engaged in the business of lending of housing loans, loans for the purpose of purchasing a commercial property and loan against property.

Affordable Housing remains a focused segment with high operational intensity and companies with mono-product focus can deliver better outcomes in the long run.

The states of Uttar Pradesh, Madhya Pradesh and Rajasthan are large emerging markets in the affordable housing space, owing to increasing pace of industrialization and urbanization underway in these states. Home First Finance believes that the next phase of growth will come from these states and intends to increase its presence in these markets in the coming years.

Shares of HUDCO, the government owned company, jumped 8 per cent to Rs 289.90, zooming 42 per cent from June 05 intra-day low of Rs 203.85.

Apart from financing low-cost social housing and non-commercial urban infrastructure projects, HUDCO offers consultancy services in cost-effective and innovative construction technologies.

India Ratings and Research (Ind-Ra) expects HUDCO’s role as a public policy institution is likely to continue. HUDCO is engaged in the development of affordable housing and sustainable urban infrastructure. It has a social mandate of funding the housing needs of the economically weaker section/low-income group category, along with uplifting the non-commercial urban infrastructure.