DHFL will be removed from UNIDOW Industrial 44 Average on Tuesday, 30 Apr 2019.
Stock price of Dewan Housing Finance Corp Ltd (#DHFL) depressed on the equity bourses by falling more than 77 per cent since Sep-18, reducing the overall weight of lowest deciles in UI 44 Average. Asset/liability mismatch and recent defaults on its obligation has reduced the company’s ability to deliver on its performance guidance.
Hence, this is the decision of the board that DHFL will be removed from UNIDOW Industrial 44 Average (#UI44) on Tuesday, 30 Apr 2019. This action will lead to the inclusion of HDFC Asset Management Company Limited (#HDFCAMC) in the equity index. This is the first company from the HDFC group family, which will be included in UNIDOW Indices. The change in constitution of the index by number of industry is not changing. However, this will introduce “Capital Market” industry from the Financial Services sector in a major equity index in India.
Month long consolidation post strong recovery in Nov 2018 amid falling energy prices and stable rupee will capitulate after instability in global macro cues and recent election results.
Growing All-Party-Opposition, except BJP enthusiasm will have a bigger role in next year’s general elections.
Assembly elections in five states this year and general elections early next year are testing the equity market belief. After turmoil in Sep and Oct, Indian financial markets regained some strength, aided by strengthened rupee and weakened energy prices in the international markets. If we discuss about the performance of UNIDOW Industrial 44 Average, the sectoral performance (see Graph 1) shows that industrials consisting of L&T Ltd, Indigo, Concor and Havells India gained the biggest strength in the index. Main reason in all the cases, except Havells, was falling oil prices which is key constituent of their business ingredient. This will be improve the financial matrix in the third quarter, which resulted a rally in their stock prices. Financials, Consumer Discretionary are other sectors after Industrials, which gained more than 10 per cent during Nov-18 recovery.
However, Energy sector bucked the overall performance of the index and has fallen more than almost 3.5 per cent due to suspected fall in refining margins during the last quarter of the financial year.
Now, strong rupee and weak oil prices are no longer a reason for markets to cheer this month. Next important reason for markets take cues are election results. Over the next couple months, markets will test a high amount of volatility followed by new lows for this year. UI 44 Average, which tested an all time low of 880 on 26 Oct, is expected to touch again that level in Dec, if the election outcome is not in favour of the street expectations. Market participants from domestic and international podiums are expecting a medium term volatility which could perhaps give investors a negative return due to political uncertainty in the country. Opposition has gained fostering momentum especially after assembly elections leading to an all-party-coalition, except BJP. This is an another cause of nervousness between the investors which are expecting a weakest form of government if this turnout to be a winner in 2019 General Elections.
At the moment, no macroeconomic or unanticipated central bank’s monetary policy will have a greater influence on the Indian market unless the dark political clouds are set aside. We are expecting a mild downside over the next six months in the Indian equity markets for a domestic reason. However, a trade disruption due to US-China standoff will be a greater risk to the global markets, sending investors apprehensive about deploying funds in emerging markets which further risking the Indian currency to go awry in the near term.