Recent slump in DHFL shares followed by increasing risk of default and corresponding mismatch in its asset-liability creates pandemonium in the index. DHFL was to be replaced by Indiabulls Housing Finance Ltd on Monday, 12 Nov 2018.
In the aftermath of the IL&FS fiasco, shares of NBFCs have become a victim of turmoil due to Asset-Liability mismatch (ALM). UI 44 component – Dewan Housing Finance Corp Ltd (DHFL) too was not spared in the recent waterfall like crash and tumbled to multi-years low by falling more than 42% in just a single week of Sep-18. A unanimous decision was taken to remove DHFL from the UNIDOW Industrial 44 Average and include Indiabulls Housing Finance Ltd from 12 Nov, 2018. However, the entire NBFCs are facing the same fate and there is no fundamental change structure of company’s corporate governance and business prospect. Hence, it has been decided to keep DHFL in UI 44 Average for now.
Non-Banking Finance Companies (NBFC) have been targeted for an asset-liability mismatch problem, which is a result of creating a long-term asset by lending for a long period of time such as mortgage/home loans and creating a liability by borrowing through short-term approach such as Commercial Papers – seeding a liquidity problem in these companies. ALM issue has been a trigger for a fall in share prices across the board, pressing management of these companies to issue statements. However, Dewan Housing Finance Corp is on a sensitive position and might have caused a problem for it, which may take a significant time to repair this problem.
Dewan Housing Finance Corp Ltd since 19th Sep 2018:
DHFL is the only company in the UI 44 Average from “Thrifts and Mortgage” industry, which had a weightage of more than half of one per cent. Below table shows, how the fall in DHFL’s stock price since 19 Sep 2018 changed the composition properties in the index:
Stock Markets in April 2018 had a spectacular performance backed by IT, Financial, Material and Consumer Staple sector. UI 44 Ordinaries surged past 1,000 for the first time after 1 Feb 2018.
Performance of global stock markets in Apr 2018 was spectacular. India’s most diversified benchmark equity index – UI 44 Average – had a stellar run in April backed by IT, Financial, Material and Consumer Staple sector.
Apr-18 was a breathtaking month for the Indian stock markets. Last two months of FY17-18 had a lackluster performance backed by new legislation in General Budget and introduction of Long-term Capital Gains Tax (LGCT) among other local and international factors. UI 44 in Apr-18 (see Graph-1) started its journey from around 940 levels on 02 Apr’18 and continued it to reclaim its starting point of 1,000.
Outstanding quarterly performances of TCS, YES Bank and other companies have fueled the rally further in the last week of the month.
A steller rally in the Indian stock market among other markets was supported by the leading factors as assessed below:
Stable economic growth and robust outlook for the first quarter of FY18-19. Other emerging economies are also witnessing a rise in economic activity, prompting investors to pump in more funds in the emerging markets.
Obliterating the risk of trade-war sparked by US and China.
New friendship engagement in the Korean peninsula has also resulted in a continuing rally.
Retail inflation looks stable due to decline in inflation in food and fuel prices. However, risk of rising commodity prices, including oil prices, are still hovering on the outlook of May-18.
Monsoon projections published by the Meteorological Department, New Delhi is giving an edge to the market for an impressive economic outlook this year.
Let’s discuss the comparison of performance between the three benchmark indices. UI 44 has outperformed the other leading major benchmark – BSE Sensex and NSE Nifty – last month. The above graph depicts the outstanding performance of UI 44 Average, which is up by more than 8 per cent after a two consecutive months of sharp declines, hitting a lifetime low of 918.96 on 23 Mar’18.