Driven by fears about fresh defaults from non-banking finance companies and regulatory restrictions on housing finance companies, the stock markets went into panic mode on Friday.
The Sensex swung 1,500 points between its high and low points during the day, eventually recovering to end at 36,841.60 points, down by 279.62 points compared with Wednesday’s close.
The recovery was driven by institutional buying, led by mutual funds, in select index stocks.
The broader Nifty lost 91.25 points to close at 11,143.10, after touching a low of 10,866.45.
Biggest loser
In the Sensex pack, Yes Bank was the biggest loser shedding more than 34% during intraday trades with most brokerages reviewing their outlook on the stock after the Reserve Bank of India (RBI) allowed Rana Kapoor to continue as the managing director and chief executive officer (CEO) only till January 31, 2019.
It closed at ₹227.05, or down 28.71%, as brokerages including Kotak Institutional Equities, Motilal Oswal Financial Services and Edelweiss Securities, all lowered their target price on the stock.
Market participants say that the already brittle investor sentiment due to the news flow on debt defaults was aggravated by the talk about restrictions on housing finance companies.
While there was no official word from the RBI, stocks like Dewan Housing Finance Corporation (DHFL) and Indiabulls Housing Finance took a hit, falling 42.43% and 8.18% respectively.
Incidentally, DSP Mutual Fund sold DHFL paper worth about ₹300 crore in the past few days though it clarified that it was done only to reduce the overall maturity and not related to any concerns related to DHFL.
Market rumours
“What we saw on Friday was panic selling on the back of market rumours related to housing finance companies. The sudden fall was such that it triggered stop losses,” said Arun Kejriwal of Kejriwal Research & Investment Services.
“While people were expecting some kind of euphoria before peaking out, that did not happen. Today’s lows are, however, unlikely to be violated in the near term,” added Mr. Kejriwal.
Stocks like IL&FS Transportation Networks, Indiabulls Real Estate, LIC Housing Finance, IL&FS Investment Managers and Infibeam Avenues all ended the day deep in the red.
Algorithmic trades
Interestingly, there was also a buzz that the massive intraday fall in the Sensex during the afternoon session was on account of a bunch of algorithmic trades that quickly escalated the magnitude of the fall. The overall market breadth was extremely weak with almost 2,200 stocks in the red as against only 542 gainers.
