Flash Crash Rips Market As Rumours Fly Thick
It was one of the days investors would rather forget as a sudden flash crash sunk stocks all across the board with the frontline Sensex crashing by more than 1000 points at one point during the day.
In a day that saw rumours spreading like wildfire, investors were seen dumping stocks like Indiabulls Housing Finance and DHFL as a buzz on a new on loan against property classification began doing the rounds in the markets. A spike in bond yields of DHFL also sent the stock into a tailspin as rumours of a default gripped the market.
The Indiabulls Housing Finance stock lost 8.49 percent to close at 1060.85. DHFL was hammered down 44 percent to Rs 337.
The frontline index, however, recovered and was down -279 points during closing.
Rumours of credit yields spiking in DHFL bond papers sent the stock in a huge tailspin as investors began dumping the stock. A clarification by the management that the company has no exposure to the beleaguered IL&FS, nor it had promoter pledges, did little to ease the liquidity pressure on the stock. During intraday trading, the stock was down almost 50 percent, but eventually closed down 44 percent.
Earlier, DSP MF sold DHFL bonds in the market at higher yields to tide over liquidity and reduce its maturity profile in its portfolios. The news of the sell-off had an effect on DHFL as it triggered a rumour that DHFL had not been able to refinance its bonds, according to market experts. DHFL management clarified that the company had a good liquidity position.
Experts point out that the lack of liquidity in corporate bond markets can have cataclysmic effects on stock prices. The 10-year G-sec is quoting at 8.08 percent yields. Stock markets are now trading close to their long-term supports 11143 key levels.
