Mumbai: The benchmark equity index Sensex was trading more than 300 points lower on Friday afternoon as nervousness over housing finance companies bothered investors. The Sensex, though, had recovered after dropping as much as 1,500 points from day’s high.
The BSE’s 30-share Sensex had fallen as much as 3.04%, or 1127.58 points, to 35,993.64, while the National Stock Exchange’s 50-share Nifty had dropped as much as 3.27%, or 367.90 points, to 10,866.45.
At 3: 03 pm, the Sensex was down 0.91%, or 338.49 points, at 36,782.73, while the Nifty shed 1%, or 111.80 points, to 11,122.55.
“Panic has struck the market. Debt funds had to sell some of their holdings to meet the collateral damage caused by IL&FS’ positions. Some of the funds had to sell off housing finance companies, as their exposure was huge and projects are not taking off,” said Deven Choksey, group managing director, KR Choksey Investment Managers Pvt. Ltd.
“The arbitrage funds are not finding easy liquidity in these stocks at the time of rollover of contracts,. So, they have been selling heavily. All the factors together are weighing on the market,” added Choksey.
Market breadth was very weak with more than four stocks declining for every stock that advanced on the BSE. Sixteen of 30 Sensex stocks traded lower.
Markets dropped sharply in reaction to a sharp selloff in Dewan Housing Finance Ltd. (DHFL). DHFL shares fell as much as 59.67% to Rs. 246.25, a level last seen on 5 January 2017. DHFL is a liquid stock, and part of the derivatives segment, and hence has not circuit breakers. The stock later recovered some losses but still traded 39.76% lower.
The sentiment for financials has been weak in recent times owing to issues with the IL &FS group and the Reserve Bank of India denying a three-year extension to Yes Bank’s chief executive officer Rana Kapoor, asking him to step down after 31 January 2019.
“It is happening to all HFCs (housing finance companies), and not just us. I fail to understand why,” Kapil Wadhavan, chairman and managing director of DHFL, told Mint.
“This is unprecedented. We have not delayed or defaulted on any payment. We have sufficient cash reserves. It seems to be the outcome of sentiment. We are communicating with all stakeholders, including investors,” said Wadhavan.
In reaction, Edelweiss Financial Services Ltd. was down 2% and Srei Infrastructure Finance Ltd. dropped 12.79%.