The stock market wildy swung on Friday led by sharp falls in the share prices of Dewan Housing Finance Corporation Ltd and Yes Bank. Both Sensex and Nifty 50 fell almost 1,500 points and 500 respectively, before clocking a sharp recovery.
DHFL scrips tanked up to 60 per cent following fears of a default crisis and settled at 42.43 per cent lower than its previous close. Yes Bank plunged to its lowest level since 2016 after the RBI refused to extend the tenure of its chief executive officer Rana Kapoor.
The Sensex lost 279.62 points to close at 36,841.60, while Nifty 50 ended 91.25 points lower at 11,143.10.
The abrupt fall in the benchmark indices was triggered by apprehensions about debt defaults by non-banking financial institutions (NBFCs), particularly after the IL&FS failed to repay a series of debts in the past one month. Other NBFC stocks like Srei Infrastructure Finance (10.02%), Repco Home Finance (9.53%) and Indiabulls Housing Finance (8.18%) were also hit.
The markets staged a recovery after DHFL, which provides housing loans to the lower and middle income groups, stressed that it had not defaulted on any commercial paper and that it too was surprised by the sharp movements of shares.
"We wish to categorically state that DHFL has not defaulted on any bonds or repayment nor has there been any single instance of delay on any of its repayment of any liability. We do not have any exposure with IL&FS," said Kapil Wadhawan, chairman and managing director of DHFL, in a statement.
With the banks pinned under a mountain of loans – non-performing assets or NPAs – reports of cash crunch with NBFCs, which offer services like loan and insurance products, was bound to cause tremors in the market, said experts.
AK Prabhakar, head of research at IDBI Capital Markets, said mutual funds that have invested in IL&FS rushed to sell their holdings in other debt instruments to create liquidity.
Meanwhile, reports also emerged that DSP Mutual Fund has sold some short-term paper of DHFL at 11 per cent discount in its bid to build liquidity against its exposure to IL&FS, another factor behind the massive fall in the market.
A market expert, who did not wish to be named, said DHFL shares were available in the secondary market on Thursday at 10.5 per cent discount.
Around 400 stocks on Friday made a 52-week low, said Prabhakar, which is about 19 per cent of all stocks trading on BSE. Most PSU stocks touched a 52-week low along with some recently listed ones. "Investors don't want to have fresh exposure in debt instruments, rather trying to create liquidity by selling their holdings."
According to him, NBFC stocks have unreasonable valuations and DHFL had not seen a correction in a very long time. DHFL touched a 2-year low on Friday, he said, adding that market tightening will impact NBFC's margins.
Due to IL&FS, mutual funds are wary about bond holdings, especially of NBFCs since they borrow short term and lend for longer period. According to an expert, there is redemption pressure in the bond holdings. There are negative sentiments on whether these bonds will be repaid or not.
Hemang Jani, head-advisory, Sharekhan by BNP Paribas, said NBFC stocks remained in the limelight due to IL&FS fiasco, with DHFL being worst hit.
What is DHFL?
- Founded in 1984 by late Rajesh Kumar Wadhawan. Currently led by Chairman and MD Kapil Wadhawan
- Aims to provide financial accessibility to lower and middle income segments in semi-urban, rural areas
- Provides loans on homes, residential plots, construction, LAP, mortgage, non-residential
- Has presence in Dubai, UK & the UAE
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