Indian Indices Trade Marginally Higher; DHFL Down Over 9%

Wed, 22 May 12:30 pm

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Share markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the realty sector, capital goods sector and energy sector witnessing maximum buying interest, while FMCG stocks are trading in red.

The BSE Sensex is trading up by 109 points (up 0.3%), while the NSE Nifty is trading up by 17 points (up 0.1%).

The BSE Mid Cap index is trading down by 0.6%, while the BSE Small Cap index is trading up by 0.1%.

In the news from finance sector, DHFL share price is in focus today.

Shares of Dewan Housing Finance Corporation Limited (DHFL) witnessed selling pressure and plunged as much as 18% in morning trades today after the housing finance company said it has decided to temporarily stop taking fresh deposits and hold premature withdrawals from existing deposit schemes as it tries to manage its tight liquidity position.

The above move comes after the recent downgrade of the credit rating of DHFL's fixed deposit (FD) programme.

DHFL, in a notice sent out to distributors and financial planners, said that in view of the recent revision in the credit rating of our fixed deposit program, acceptance of all fresh deposits, as well as renewals, has been put on hold with immediate effect. However, the company added, premature withdrawals would be allowed only in cases of medical or financial emergency if backed by proper documentation.

Note that DHFL's fixed deposit programme was downgraded by Brickwork Ratings India Ltd on Friday to BBB+ from AA- and had been put on credit watch with negative implications due to the limited build-up of liquidity. In its rating release, Brickwork Ratings pegged the size of DHFL's fixed deposit programme at Rs 120 billion.

In other news, as per a leading financial daily, the Employees' Provident Fund Organisation (EPFO) is planning to seek early re-payment of some of its investments from troubled firms in the sector, such as DHFL.

This comes on concerns regarding defaults and downgrades among NBFCs.

As per the news, the issue was discussed by the EPFO's Finance, Investment and Audit Committee (FIAC) at its meeting earlier this month.

A final decision on pulling back investments from select NBFCs, however, will be taken by the CBT, which is chaired by the Union Labour and Employment Minister, after the new government takes office.

The move also comes after the EPFO's difficulties with its investments in debt-ridden Infrastructure Leasing and Finance Company.

Data with the Standing Committee on Labour pegged the investment by the EPFO in IL&FS at Rs 5.7 billion.

How this all pans out remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

Speaking of NBFCs, it is evident from the chart below that their credit growth has seen robust growth in recent years.

Is the NBFC Party in India Coming to an End?

From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks. A major reason for this is the gain in market share from public sector banks (PSBs). The NPA woes of the PSBs has seen them tighten up their credit lines.

And the NBFCs stepped in, along with private sector banks, to fill this gap.

But the liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

It would be interesting to see how this pans out.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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