Default roils investors in Indian stocks
mumbai — India’s benchmark equity index fell the most since March, as turmoil in non-bank finance companies deepened after a troubled lender disclosed further missed debt payments late on Friday and panic seeped into Asia’s best-performing stock market.
The S&P BSE Sensex declined 1.46 per cent at close in Mumbai, its fifth day of losses, with a gauge of financial shares tumbling 3.5 per cent. The broader Nifty Index closed 1.51 per cent lower.
Investors remained jittery about financial firms after a recent default by Infrastructure Leasing & Financial Services Ltd. A gauge of investor anxiety surged to its highest level in more than seven months, after the Sensex on Friday had its wildest intraday move in more than four years.
Financiers have come under pressure because ‘liquidity is getting tight,’ Rahul Chadha, chief investment officer at Mirae Asset Global Investments told Bloomberg TV. Markets may remain range bound for six-to-nine months, he said.
Equities declined even as Indian authorities vowed to support financial markets. Indiabulls Housing Finance dropped 7.6 per cent while PNB Housing Finance Ltd and Edelweiss Financial Services Ltd slumped at least eight per cent. Citing recent share-price slumps and liquidity support, Kotak Institutional Equities upgraded non-banking financiers under its coverage, including Cholamandalam Investment and Finance Co and LIC Housing Finance Ltd.
Finance Minister Arun Jaitley said the government will take all measures to ensure adequate liquidity for non-banking finance firms, while the nation’s central bank and market regulator on Sunday said they are “closely monitoring recent developments” and are ready to take “appropriate actions,” if necessary.
Friday was a “gut wrenching day in Indian market,” said Jagannadham Thunuguntla, senior vice president and head of research for wealth at Centrum Broking Pvt in Mumbai. That day started with a nosedive in Yes Bank Ltd’s shares after the central bank rejected the lender’s request to extend the tenure of chief executive officer Rana Kapoor by three years. Then came a record plunge in Dewan Housing Finance Corp, which bled into other financial stocks, on speculation that a debt default by IL&FS may spread to other lenders.
Dewan rose as much as 25 per cent on Monday after the company said on Friday that it has 197 billion rupees of liquidity available to meet its obligations.
The reason for the speculation: DSP Mutual Fund sold Dewan Housing bonds at a discount last week. The fund manager sold the debt to boost its cash levels before an expected tightening of market liquidity in September, Kalpen Parekh, president of DSP, said in an interview. The firm sold 3 billion rupees ($41.6 million) of the bonds to express “our interest view, not a credit view,” Parekh said.
“This has been done across issuers over last few days.”
Dewan’s Chairman Kapil Wadhawan said the company hadn’t defaulted on any repayments and had a cash surplus to cover any dues for the next six months.
IL&FS missed interest payments again on Friday, causing concern among investors who had regarded the group’s debt as rocksolid. With the IL&FS cash crunch set to intensify, there are concerns that the impact may spill over into the wider infrastructure industry, pushing up funding costs. Its outstanding debentures and commercial paper accounted for 1 per cent and 2 per cent, respectively, of India’s corporate debt market as of March 31, according to Moody’s Investors Service.
The S&P BSE Finance Index currently trades at an estimated priceto-earnings ratio of 19.3 times. —
The government will take all measures to ensure adequate liquidity for non-banking finance firms
Arun Jaitley, Indian Finance Minister