Mumbai: The stock market tumbled on Thursday over growing worries about the health of nonbanking finance companies after Dewan Housing Finance Corp’s failure to pay interest eclipsed optimism around the third straight interest rate cut and change in stance by the RBI.

Benchmark indices dropped almost 1.5 per cent, posting their steepest single-day fall in 2019 so far, with the Sensex ending below 40,000 and the Nifty below 12,000. The Sensex dropped 553.82 points, or 1.38 per cent, to close at 39,529.72. The Nifty declined 177.90 points, or 1.48 per cent, to close at 11,843.75. The last time these indices posted a bigger loss was on December 21.

Foreign portfolio investors (FPIs) net sold shares worth Rs 1,448.99 crore on Thursday. Domestic institutional investors (DIIs) too pulled out Rs 650.84 crore from stocks.

The change in RBI’s policy stance to ‘accommodative’ from ‘neutral’ — an indication that henceforth there would be no rate increases — was expected to lift market sentiment, but investors were disappointed that the central bank did not specify how it plans to tackle the liquidity crisis plaguing nonbanking finance firms.

The assurance by governor Shaktikanta Das that the RBI will do whatever it takes to ensure stability of the system did little to ease concerns.

Volatility index declines

“On any normal day, the market would have cheered the rate cut and change in policy stance. But investors were worried about NBFCs, and perhaps expecting some concrete measures (from the RBI),” Rajat Rajgarhia, CEO (institutional equities) at Motilal Oswal Securities. “The fact that both foreign and domestic institutions sold big today (Thursday), which doesn’t happen usually, reflects the sentiment during the day.”

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DHFL missed interest payment of Rs 960 crore due on Tuesday, resulting in credit rating agencies slashing ratings on the company’s bonds to ‘default’. Investors in debt mutual funds holding DHFL paper suffered one of their biggest single-day loss on account of the event.

sensex-graph

The Sensex and Nifty have gained about 5.5 per cent since the exit polls after the elections forecast a BJP victory. Analysts said the market gains in the past few days had also factored in a rate cut of 25 basis points by the RBI.

“Investors have taken profits off the table because the market has become expensive after the runup since the exit polls. The DHFL issue gave them reason to sell,” said Jyotivardhan Jaipuria, managing director of Valentis Advisors, a fund management firm.

The broader market also ended weak with the BSE Midcap index falling 1.8 per cent and the Smallcap index shedding 1.6 per cent. Losers outnumbered gainers 1859:740 across share categories on the BSE.

Bank shares led the selloff on Thursday with the Bank Nifty index falling 2.3 per cent — its steepest single-day percentage loss since September 2018. State Bank of India, IndusInd Bank, Yes Bank and Bank of Baroda fell 4-7 per cent on concerns over their exposure to NBFCs like DHFL.

The Volatility Index declined 0.7 per cent, showing that options traders do not foresee major risks in the near term.

Deutsche Bank forecasts a 10 per cent advance in the market in the next three months.





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