PMO sees red in NBFC stock crash, seeks Sebi probe

Amidst liquidity crisis at the country’s major non-banking finance companies, the Prime Minister’s Office (PMO) is reported to have asked market regulator Securities and Exchange Board of India (Sebi) to probe the stock market crash in September and October.

The PMO sees a deliberate move on the part of the stock market’s bear cartel to vitiate market sentiment in the wake of liquidity problems with non-banking finance companies, reports said.
PMO is reported to have in particular sought details related to the fire sale of Dewan Housing Finance’s (DHFL’s) AAA-rated debt paper by DSP Mutual Fund days ahead of September series derivative expiry, and the subsequent 60 per cent crash in the company’s share price.
On 21 September, DHFL shares plummeted almost 60 per cent in intraday trade, dragging down the shares of other housing finance companies as well. 
DHFL has been in the news in the last few months and its share price crashed from a high of Rs690 to Rs175 on rumours of a default in payment, which the company had denied. 
By close of trading that day, DHFL had lost Rs259.05 or nearly 43 per cent, wiping out over Rs10,000 crore of the company’s market capitalisation.
In a note to DHFL, DSP said, “There were comments that 9 per cent bond was traded at 11 per cent. 9.05 / 9.10 per cent is the coupon of traded bond and not its prevailing market yield. Prior to our trade, this bond was traded at 10.25 per cent and its bid-ask was at 10.50-11 per cent. Irrespective of this sale, industry-wide NAVs would have captured these levels for valuing these bonds.
“For an issuer that has large amounts of outstanding bonds and is widely held across industry, sale of short dated bonds of only ?300 cr in a bid-ask of 10.5-11 per cent is not material enough to have a cascading impact across asset classes. We have not done any distress sale of assets.”
Shareholders would seek further comfort from DHFL while announcing the results. In Q1 of FY 19, it had posted a profit of Rs435.02 crore on revenues of Rs3,149.67 crore.
Dewan Housing Finance Ltd is set to declare its July-September (Q2) results today.
The IL&FS financial mess that had come to light in late August, did not affect market sentiment as key equity indices were near record highs then and the markets were hit only after the crash in DHFL and other NBFC stocks, according to PMO.
Sources said the PMO wants to know what led DSP to sell DHFL debt, even when fund officials reportedly admitted there was no redemption pressure. In a media interview the day after the DHFL crash, a DSP fund manager had said flows in the fund were in line with market and there was no redemption pressure.
DSP’s average AUM stood at around Rs95,000 crore, which was nearly same as August, the manager said. He also said DSP was still holding DHFL papers worth Rs800 crore.
The PMO wants a closer look at the trading pattern of foreign portfolio investors in DHFL, other NBFCs and banking shares, in the days immediately preceding and after September 21.
The PMO also sought answers on the kind of derivative positions that were built up and whether there was short selling on 21 September in the cash segment. Net long positions were high in index futures and the timing of sell-off in debt markets led to massive unwinding in equities.