The Dewan Housing Finance stock fell up to 60 per cent or 364 points in trade today which spurred heavy selling in other housing finance stocks.
The sell-off in turn forced Sensex and Nifty shed over 1128 points and 368 points in trade intra day. However, the sell off reversed to some extent after the management of Dewan Housing and LIC Housing Finance clarified to business news channel that repayment of loans were on time with their firms and there was nothing wrong with their financials.
The Sensex too after swinging wildly closed just 279 points or 0.75 % lower at 36,841 level. The Nifty recovered and ended 91 points higher at 11,143 points.
But then why did housing finance companies along with Dewan Housing Finance Corp stock fell in trade today?
"Most of the housing finance and NBFC companies' stock prices have declined by 10-40% intraday after the news spread that DSP MF was forced to sell commercial papers of Dewan Housing Finance in the secondary market at a higher yield. The higher yields for the commercial papers were due to tight liquidity into the system," IIFL said.
"Market participants are linking this with other NBFC and Housing Finance companies, which hold commercial papers as one of their source of funding. After the example of the IL&FS event, investors wanted to be risk averse. DHFL and Indiabulls Housing Finance both have confirmed that they do not have any exposure to IL&FS" the Mumbai-based financial services firm said.
The Dewan Housing Finance stock pared some losses in late afternoon trade and closed 42% or 259 points lower at 351 level on the BSE.
Reliance Securities in note said, "There is news that DHFL bond has sold for a high implied yield to maturity of 11%. This has made stock investors of DHFL worried about DHFL's liqudity and sold off the stock. Other housing finance companies have sold off in sympathy with DHFL. Other non-HFC NBFCs have joined in the sell off. DHFL management has confirmed on air that they have not faulted and there is no liquidity crisis at DHFL.
It is possible that the entity which sold DHFL paper did so because it was not satisfied with this exposure and wanted to sell anything of slightly questionable creditworthiness. This is an example of risk aversion after the unfolding of the IL&FS saga even though entities being sold off have no direct exposure to IL&FS. DHFL and IBHF have both confirmed on air they do not have any exposure to IL&FS."