India reported credit growth of 16% YoY at the end of September 2022 - that’s a nine-year high. Ideally, credit growth should have been impacted as:
The macroeconomic environment gets more difficult
Inflation rises, and consumption may possibly reduce
Interest rates rise, and the demand for credit reduces
But, the numbers show a completely different side; fast-growing credit growth, indicating that people are still spending. and businesses are either investing or funding their working capital.
Data | Sector | View | Logic |
While credit growth has been at 16%, deposit growth stands at 9% | Banking | Negative | Banks will either need to slow down on their lending when there’s demand, or increase their deposit rates to make saving more attractive |
Credit growth to the ‘Services’ sector accelerated to 17% in August 2022, from 2.1% a year ago, mainly due to improved credit off take to NBFCs | NBFCs | Positive | Increased credit to the underserved indicates potentially strong AUM growth. Unlike banks, NBFCs don't rely on deposits. They’ll most likely see higher growth, but some cost increases too |
Personal loans growth improved to 20% from 13% a year ago, driven by housing and vehicle loans | Auto | Positive | The last few months have seen strong auto sales, and the credit data supports a thesis for continued strength despite interest rate increases |
Growth in loans for consumer durables was up 65% YoY, compared to 47% last year | Consumer durables | Positive | This is on a low base and possibly because of increased credit card usage, low-cost EMIs and BNPL apps |
Buying on Dips
The credit growth data has been indicating strong underlying demand and trends for:
NBFCs
Automobiles
Consumer Durables
With the markets being impacted by global factors, dips will often lead to selling across the markets. There is potential for sectors with strong fundamentals and tailwinds to also get beaten down during these falls.
Any valuation mismatches (relative attractiveness given fundamentals) can throw open opportunities for the long term.