Dewan Housing Finance Corp Ltd (DHFL) to remain in UI 44 Average.

DHFL to remain UI 44 Average component.

Advertisements

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 Stock Price

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:

Particular Change
Stock Return -70.05%
Weightage -65.19%

 

Indian Stock Markets in May 2018. UI 44 Average Underperformed Other Major Indices

Oil prices, tumbling rupee (INR) and political choppiness in Karnataka and other constituencies went for by-polls confined equity markets in a rangebound territory in May 2018.

Resurgence in the Indian equity markets, in Apr-18, marred by a series of uncertainties in the domestic markets and international trades amid increasing geopolitical pull. Results of assembly polls in Karnataka state has aided additional support to the sellers to dump shares for moving back to safe heaven. India’s gross domestic product grew 7.7% in the quarter ended Mar 2018, the government said, making India the fastest growing major economy in the world. Yet, this buoyancy has failed to revive the market sentiment.

UI 44 Ordinaries in May 2018
UI 44 Ordinaries in May 2018

 

UI 44 Average traded in the negative territory throughout the month while the BSE Sensex 30 and NSE Nifty 50 outperformed marginally. HDFC Bank and HDFC, which are not the UI 44 constituent, significantly rose during the month, pushed the benchmark indices of stock exchanges higher. However, UI 44 Average, an index which shows sentiment of the Indian market, relatively exhibiting the weakness in the coming weeks.

Major Benchmark Indices in May 2018
Major Benchmark Indices in May 2018