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: