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Companies with high debt levels bore the maximum brunt of the market, which itself is reeling under pressure due to weak monsoon forecast and waning hopes of further rate easing. Shares of some of the big names in real estate and construction space, including Unitech and JP Associates, slumped as much as 35 per cent to multi-year lows.
The collapse was trigged by market speculation that leveraged companies were facing repayment defaults, with high level of share pledge by promoters in some of these companies intensifying the fall.
Shares of New Delhi-based property developer Unitech crashed as much as 52 per cent, while that of JP Associates slumped over 30 per cent intra-day trade. Both companies denied facing any repayment related issues. Shares of Unitech finally closed at Rs 8.7, down 35 per cent and JP Associates ended 21 per cent down at Rs 13.05.
The carnage spread to other debt-laden companies such IVRCL, Hindustan Construction Company (HCC), Reliance Power, Adani Power, which dropped more than 10 per cent each.
"The default rumours caused a chain reaction. Investors in other debt-heavy companies are also headed for exit," said Ambareesh Baliga, an independent market expert. "Market sentiment is weak and further correction cannot be ruled out."
The common thread in the worst-performing stocks in the BSE 500 index on Wednesday was high debt and stretched debt-to-equity ratio.
Unitech, in a statement, however said its debt is at "manageable levels" and termed the payment default rumours as "false and misleading".
"Rumours are being spread by certain segments of the market to profit from trading pertaining to Unitech defaulting on repayments to certain lenders, which are false and misleading," it said in a statement. "Unitech has in fact significantly ramped up its execution capabilities and expects to increase deliveries considerably this year," the company said, adding that its debt equity ratio is one of the lowest in the industry.
Jaiprakash Associates too denied rumours of default and share pledge revocation. It said the fall in its stock price cannot be attributed to any development linked to performance of the company.
Market experts said uncertainty with regards to further monetary easy by the Reserve Bank of India (RBI) has soured investor sentiment towards rate-sensitive stocks especially in the realty sector.
Dhananjay Sinha, head of research, economist & strategist, Emkay Global Financial Services said "the hawkish stance by the RBI and expectations of only a gradual recovery is reflecting in the market sentiment." He said debt-laden companies are always vulnerable to such steep corrections and investors would still be better off staying away from such companies.
