Sharp moves on D-Street cost investors nearly Rs 2 lakh crore. 5 factors that weighed on sentiment

A day which will go down in history as one of the most volatile days of 2018 saw Sensex recovering by more than 900 points, while Nifty50 managed to just about hold on to 11,000-levels.

Even though benchmark indices recovered from day's lows, but investors became poorer by nearly Rs 2 lakh crore in just one trading session, and by over Rs 5.5 lakh crore this week, BSE data showed.

Led by sharp fall in stocks, the market capitalisation (m-cap) of BSE-listed companies plunged by Rs 1.89 lakh crore to Rs 150.83 lakh crore compared to Rs 152.73 lakh crore recorded on Wednesday.

The S&P BSE Sensex finally closed 279 points lower at Rs 36, 841 while the Nifty50 ended 91 points down at 11,143 on Friday. For the week, Sensex has lost 1,249 points, or 3.2 percent, while Nifty lost nearly 400 points, or 3.2 percent, for the week ended September 21.

Sectorally, BSE Realty index lost 3.4 percent, followed by the S&P BSE Bankex, which lost 3.1 percent, and the S&P BSE Finance Index was down 2.5 percent on Friday.

We have collated a list of top five factors which could have contributed to the fall in markets:

‘Default’ rumors of DHFL bonds:

DHFL crashed over 50 percent on concerns of liquidity crisis. However, the management clarified that the fundamentals of the company stay intact and the company is sitting on strong liquidity. The stock closed 42 percent lower at Rs 351.55.

“We are sitting on strong liquidity, we are extremely conservative on liquidity. Not a single repayment chew us, we always take care of interest rates and always ready for a couple of quarters ahead,” Kapil Wadhawan, CMD, DHFL told CNBC-TV18.

Some reports suggested that one fund house tried to sell one-year commercial paper of the company, Wadhawan said this is just a secondary trade between parties. "This panic has no fundamental reasons, there must be cascading effect as we have good asset quality and NPAs are fine."

Yes Bank cracks on brokerage downgrade:

Another stocks which remained on sellers' list was Yes Bank. It dropped as much as 34 percent intraday to register its fresh 52-week low and record its worst fall since listing after the Reserve Bank of India (RBI) cut the tenor of Rana Kapoor, promoter, chief executive and managing director, to January 31, 2019.

Most brokerage firms, both global and domestic, downgraded the stock and reduced their target prices to reflect the near-term pain.

DSP MF sells DHFL shares which fuelled liquidity concerns:

The management of DSP Mutual Fund told CNBC-TV18 that it sold DHFL paper worth Rs 200-300 crore recently in a bid to improve liquidity and reduce overall maturity.

Further, they added that the fund house has some exposure to IL&FS Group and added that they have already marked down holding on marked to market ratio.

Rise in bond yields weighed on NBFCs:

The 10-year benchmark bond yield is currently trading above the 8 percent mark. A widening current account deficit as well as selling by foreign institutional investors are exerting upward pressure on bond yields.

The 10-year bond rose to 8.23 percent last week, its highest since Nov 14, 2014 while the rupee fell to a life-time low of 72.99 to the dollar on September 18, said a Reuters report. Rising bond yields will also have negative impact on NBFCs, suggest experts.

"Bond yield hardening and liquidity drying scenario, the first segment that will come under pressure would be NBFCs in general and Housing Financing Companies (HFCs) in particular. The very nature of HFCs is to have negative Asset-Liability-Mismatch (ALM) scenario wherein the liabilities (sources of financing) will have to be re-priced multiple times during the life of assets (housing loans)," Jagannadham Thunuguntla,  Sr VP and Head of Research (Wealth),  Centrum Broking Limited told Moneycontrol.

"In an increasing interest rate scenario (such as current times), a higher proportion of shorter tenure funding against a higher proportion of long term assets, would be harmful. Further, with the events such as IL&FS default, the situation gets aggravated squeezing the liquidity from the money markets," he said.

Technical Factors:

The Nifty50 which slipped below 100-days moving average and 100-days exponential moving average (EMA) bounced back from lows and formed a strong bearish candle. The index is now trading below crucial short-term moving averages such as 5-13, 20, and 50-EMA.

Nifty recovered by around 300 points from its panic lows but overall bears are keeping their tight grip on the market. The index has also broken its support placed at 11,171 and bulls will only be able to take control if the index reclaims 11333 zones, suggest experts.

“Nifty formed a strong Bearish candle on the daily scale with its biggest intraday fall in last many months. However it recovered by around 300 points from its panic lows but overall bears are keeping their tight grip on the market,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.