“Two things simultaneously led to this panic selling,” according to Deven Choksi of KRChoksey. “Some of the mutual funds schemes ended up offloading part of their portfolios to offset the losses from IL&FS holding. Along with this, heavy selloffs could have happened from arbitrage funds in the cash market. Need to validate this from the end-of-day market data.”
The selloff in equities spread to the money market. The Indian rupee erased early gains and traded 0.11 percent weaker against the dollar at around 1:10 p.m. after the housing finance firms’ shares nosedived. The local currency, however, recovered the losses to close 0.25 percent higher.
“We would advise investors to not panic in situations like this,” Choksi said. “Our markets are extremely volatile as they are inefficient, with the derivative market which is driving the cash market crazy,” Choksi said.
Yes Bank ended 29 percent lower for the day, eroding Rs 21,396 crore in market value. Dewan Housing Finance and Indiabulls Housing Finance recovered to close 42.6 percent and 8.4 percent lower, respectively.
Basant Maheshwari of Basant Maheshwari Wealth Advisers, however, stressed that fundamentals of the Indian market remain strong and he was bullish. “If one financial firm is in trouble, it doesn’t mean the entire financial sector is facing problems.”
Source: Bloomberg Quint