Indian markets steady despite cash crunch fears

MUMBAI: Indian markets steadied after an early wobble yesterday despite a rupee currency dangerously close to record lows, and abiding fears that problems at two large non-banking financial companies could signal a wider credit crunch.

Alarm over potential for a credit crunch had heightened on Friday when bonds issued by Dewan Housing Finance Corp were sold by a large fund manager at hefty discount. Shares in the NBFC fell 23.2% yesterday, undoing the previous day’s recovery from Friday’s catastrophic fall, when the stock nearly halved in value.

Investors had already been set on edge by Infrastructure Leasing & Financial Services defaulted on a series of its coupon payments.

“There’s a lack of confidence in the markets now, especially in the banking sector,” said Siddharth Sedani, head of equity advisory at brokerage firm Anand Rathi.

The central bank late on Monday said it would buy 100 billion rupees (RM5.7 billion) worth of government bonds, but Sedani said the market would need more long term reassurance than open market operations can provide.

The main share indexes fell by up to 0.8% in nervous early trading, before recovering. By early afternoon the broader NSE index was 0.28% up, while the benchmark BSE index had gained 0.45%.

There was no let up in the suffering for investors in NBFCs, however, and others followed the fall in Dewan Housing Finance.

Indiabulls Housing Finance Ltd fell as much as 8.7% yesterday, with the stock shedding 15.3% over the past two sessions.

Finance Minister Arun Jaitley told investors on Monday that the government stood ready to take steps to ensure adequate liquidity to NBFCs, echoing assurances already given by the central bank and the market regulator. But investors said the markets needed more than verbal assurances.

Having posted record highs last month, equity markets were still in better shape than the rupee and the bond market.

India’s lurch into a balance of payments deficit in the April-June, as price of oil imports continuing to climb spelt trouble for a rupee already bruised by rising US interest rates and the fall out from US tariff wars. – Reuters