Friday's sharp share sell-off of several banking and non-banking finance companies has put the Securities and Exchange Board of India (Sebi) and stock exchanges on high alert. According to sources, the regulator met the stock exchanges on Monday evening to avert any further damage and ensure that there is ample liquidity. The move comes close on the heels of the (Sebi) and banking regulator Reserve Bank of India (RBI) issuing a rare joint-statement over the weekend, expressing their readiness to act, if required.
On Friday, the market had seen acute volatility, especially in NBFCs stocks. Dewan Housing Finance Corporation slumped as much as 42.6 per cent and YES Bank showed a sharp decline of 29 per cent. India Bulls Housing also reported a decline of 8.2 per cent. Other major NBFC stocks too lost in the range of three per cent to 20 per cent. The market regulator is reportedly monitoring these stocks and other lenders to detect any breach of securities laws or irregularities.
In a meeting on Monday, Sebi has directed stock exchanges to prepare a report on open interests in these stocks and keep it informed. Also, exchanges have been asked to go through the list of wealthy investors, including foreign institutional investors, who had taken position in these stocks in the futures and options (F&O) segment. The data was sought to determine whether these trades were made based on some unpublished-price sensitive information.
The regulator also contemplated further tightening of limit monitoring system. In this attempt, it has asked exchanges to consider any additional margin imposition on the stocks, which have seen huge surge in open interest.
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In addition, Sebi is also ascertaining the links between the sudden downgrading and rumours about credit default in various financial institutions as this could pose a systemic risk. The regulator is said to have sought details of trades made by DSP MF in the debt papers of IL&FS last Friday.
Experts believe that the current volatility in the markets is on account of onslaught in the IL&FS.
“The rating of IL&FS, which has defaulted on payment, is the main cause of this sharp fall. This is the incompetence of the rating agencies, which took a lot of time to identify that IL&FS is at default risk. The regulatory authorities should question these credit rating agencies. The debt market is panicking and therefore fund raising has become difficult. The equity market is thus affected,” said Rajesh Baheti, president, Association of National Exchanges Members of India (Anmi). IL&FS has asked the government to clear dues worth as much as Rs 160 billion for the work done by the company. On 17 September, rating agency ICRA downgraded the credit rating of IL&FS to default.