Stock market falls as NBFC liquidity fears weigh on investor sentiment

The benchmark indices fell sharply from their day’s high on Wednesday as liquidity fears weighed on investor sentiment and dragged down shares of non-banking financial companies (NBFCs).

The Sensex fell as much as 878 points from an intra-day high of 35,605 amid a sell-off in banking shares. The index snapped three days of gains to end at 34,780, down 383 points, or 1.1 per cent. The Nifty 50 index closed at 10,453, down 132 points, or 1.24 per cent. The 50-share index had climbed to a two-week high of 10,710 during the day. Both the benchmark indices traded in the green for the better part of the day following strong overnight gains on the Wall Street and a jump in other Asian peers.

Liquidity fears resurfaced after shares of Indiabulls Housing Finance tumbled on concerns over exposure to Supertech, whose credit facilities were downgraded to default.

Shares of Indiabulls Housing Finance dropped 14.3 per cent to Rs 778 on the National Stock Exchange (NSE). Other NBFC stocks also dropped on fears that liquidity shortage would hamper growth. DHFL declined 12.3 per cent and Edelweiss fell 10 per cent.

Experts said the liquidity crunch at NBFCs had compounded worries for the market, which is already grappling with the depreciating rupee and higher oil prices.

“Investors are scared that liquidity conditions might tighten. The market is already dealing with the default at IL&FS. There is a fresh default by a realty company, where NBFCs and banks have high exposure. The market is worried that it won’t end here. There could be contagion risks,” said A K Prabhakar, head of research at IDBI Capital.

Among Sensex components, shares of YES Bank plunged 6.85 per cent, of State Bank of India 3.4 per cent, and Axis Bank 2.4 per cent.

All 19 sectoral indices, with the exception of FMCG and technology, of the BSE ended with losses. The worst-performing index was the BSE Realty index, which fell 3.2 per cent, with shares of Indiabulls Real Estate hitting lower limit of 10 per cent, DLF dropping 8.7 per cent and HDIL declining 4.7 per cent.

“The worry now also seems to be that slowly the impact could spill over to the corporate sector, especially the real-estate sector, where there was a lot of round-tripping going on through NBFCs and debt funds,” said Macquarie in a note.

The broader market saw a deeper correction, with the NSE Midcap and Smallcap indices declining 2.3 per cent and 2.6 per cent, respectively. On the BSE, only 672 stocks advanced, while 1,938 gained.

Among the gainers were consumer and technology stocks, considered to be defensive bets. ITC gained 1.34 per cent, while Wipro and Infosys gained over a per cent each.