Fears set off by IL&FS still roil markets

The ongoing concerns related to liquidity woes at non-banking financial companies (NBFCs) affected the broader market sentiment on Monday even as both the benchmark indices lost around 1.50% each with the Nifty closing below the psychological 11,000-mark.

Interest rate-sensitive sectors such as banking, realty and automobiles bore the maximum brunt with some of the sectoral indices losing in the range of 3-5% each. The overall market breadth was extremely negative with more than 2,100 stocks in the red on the BSE, as against only 500 gainers.

Meanwhile, the benchmark Sensex lost 536.58 points or 1.46% to close at 36,305.02. The broader Nifty settled the day at 10,967.40, down 175.70 points or 1.58%.

Regulators step in

According to market participants, the concerted efforts by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) over the week-end and the statement by Finance Minister on Monday helped assuage the concerns to a large extent.

“The Government will take all measures to ensure that adequate liquidity is maintained/provided to the NBFCs, the Mutual funds and the SMEs,” tweeted Arun Jaitley before the markets opened for trading.

On Sunday, the RBI and the SEBI jointly said that they are closely monitoring the developments in the financial markets and are ready to act, if required.

“It is a volatile scenario with yields hardening, currency depreciating and liquidity tightening,” said Nilesh Shah, managing director, Kotak Mutual Fund.

“NBFCs were growing rapidly and if their ability to refinance gets impacted, then growth will ultimately be impacted. The recent events have impacted investor sentiment though the pre-emptive action [by government and regulators] has sent the message loud and clear that the situation is being watched,” added Mr. Shah.

Interestingly, Dewan Housing Finance Corporation, which lost over 40% on Friday, gained nearly 12% while Yes Bank was down a marginal 0.35%. The private sector lender lost nearly 29% on Friday.

Banking majors such as ICICI Bank, Bank of Baroda and Kotak Mahindra Bank lost in excess of 2% each. Punjab National Bank fell nearly 5%.

“NBFCs and financials are getting impacted due to a combination of factors like concerns related to IL&FS, hardening of yields and the U.S. Fed meeting scheduled later this week,” said Siddhartha Khemka, Head of Research (Retail), Motilal Oswal Financial Services.

Realty companies, which are heavily dependent on NBFCs for financing, also lost huge ground with stocks such as DLF, Oberoi Realty, Indiabulls Real Estate and HDIL shedding more than 5% each.

S Naren, executive director and chief investment officer, ICICI Prudential Asset Management Company, is of the view that the market is currently reacting to an isolated case and valuations of leveraged businesses such as NBFCs tend to get corrected in a rising interest rate environment.

“Add to it, the fact that Indian markets have not reacted much to high oil prices and political uncertainty on account of national elections scheduled next year leads to a conservative view on the markets,” said Mr. Naren.

According to Mr. Khemka, the larger market fall was mainly on the back of other macro headwinds such as higher crude and falling rupee. While valuations were expensive, the market was earlier supported by earnings growth.

Incidentally, Brent crude prices crossed $80 a barrel mark amidst geopolitical tensions between the U.S. and Venezuela.

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Printable version | Dec 6, 2021 5:59:19 PM |

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