Stocks Nose Dive As Investors Feel The ‘Cash Crunch’

Stocks are reeling under heavy selling as traders and investors dumped stocks across the board fearing the cash crunch in the economy. The BSE Sensex nosedived 2.5 per cent and lost nearly 700 points during the day.

Foreign investors are offloading in a big way withdrawing Rs -1493.3 crore. While domestic investors are making purchases, the intensity of buying has been reducing. On Friday 11, domestic investors purchased stocks worth only Rs 64.72 crore, as per provisional figures, and were not enough to stem the heavy sales of FII selling of Rs 1493.2 crore.

On the global front, investors are dumping stocks as a US Fed rate hike looms in December, and due to the uncertain economic policies of the President-elect, Donald Trump. India was among the biggest losers in the emerging markets losing 2.54 percent on the Sensex. Global markets like Jakarta markets lost 4.01 per cent, while Taiwan lost 2.1 per cent.

In the domestic markets, traders are pointing out that the cash squeeze is causing a turmoil in the domestic markets. Stock traders are pointing out that the default risks are rising among small businesses if the cash position in the economy is not restored soon enough.

The liquidity crunch is becoming tighter with many companies doing business, particularly in the rural economy, feeling the pinch of a ‘cashless’ economy as old denominations of Rs 500 and Rs 1,000 currency are no longer legal currency.

Mid-cap stocks were hammered even as the NSE Mid-cap 100 tumbled 3.49 percent to 14854.70. Some of the big losers in the mid-cap space were largely from the NBFC and micro-finance sectors.

The cash crunch is affecting the EMI collection of these banks from the rural economy as finance companies are now unable to collect their EMIs in the old currency. Banks are postponing their EMI collections for now, but are pointing out that a prolonged effect of ‘cash squeeze’ could have an impact on their NPAs.

NBFC and micro-finance companies slipped 5-10 per cent on the bourses. Bajaj Finance lost 6.91 per cent sliding to Rs 865. M&M Finance slipped 10.2 per cent to Rs 284. Bharat Financial Inclusion tumbled 6.18 per cent to Rs 695. Dewan Housing Finance dipped 8.53 per cent to Rs 251.40.

Besides, companies that have a major presence in the rural areas are also feeling the heat of the liquidity squeeze. M&M dipped 6.02 per cent to Rs 1241.85, while Hero Motocorp slipped 5.18 per cent.

In the coming weeks, traders are pointing out that as ‘cash squeeze’ is happening in the markets, domestic investors are on the fence waiting for the air to clear. However, with foreign investors pressing sales due to uncertainty on the global front, the Indian markets are likely to face some additional pressures in the coming weeks.