Trading session of Friday was among the most volatile sessions of last few years. Some are referring this day as the Black Friday and some are calling this day as the worst day for the HFCs.
Before this day also, markets were volatile and investors were nervous about the high crude oil prices and depreciating rupee. But it never seen in the market that two major financial firms (Yesbank and Indiabulls Housing Finance) had to loose over 30 percent in a single day. Especially, when both are the parts of Nifty Index!
YesBank shares which said Yes to all the lower levels on Friday fall as much as Rs 100 after RBI rejected the proposal of Yesbank head Rana Kapoor to continue leading the Yesbank team for more couple of years.
Definitely, its a setback for Yesbank investors because the rejection was only due to the wrong numbers of NPAs reported by the Yesbank under leadership of Rana Kapoor. As I know and have readed in a Newsreport, Yesbank in a particular year had reported lower NPAs/Bad loans against RBI estimates which were very high.
Maybe, Yesbank may still recover from current levels after recent crash. But what has happened in other Crashes of Friday have now very unpredictable short term future!
DHFL, which is among the most reputated Housing finance company, also got played like a Penny stock on Friday. After DSP Mutual fund sold some Bonds of DHFL due to personal reasons, rumours started spreading in the market that there are some serious issues with DHFL. Investors started assuming that in reponse to this issues, DSP Mutual has choosen to sell some bonds. After it, around 12 noon, DHFL shares also started reflected the same as rumours were. Within a hour, stock slided as much as Rs 300 or 50 percent which is equal to half of the company’s market cap.
Regarding Bond sale and rumours of some serious issues in Company, CMD of DHFL clarified through many news channels that the company is in strong position and investors doesn’t need to worry about its fundamentals. This helped the stock little much to recover from its lows of below Rs 280 and to settle around Rs 350.
Probably after such crashes, it would be a question in your mind that despite of such high domestic inflows in markets, why high goodwill companies are able to fall like this when even low quality/volatile stocks also resist to fall like this? The answer of this is very simple.
In last few years, it is true that public has now started investing more in the markets. But they are doing this by investing in Mutual fund schemes. Instead of investing individually, Public money is in the hands of AMCs like HDFC AMC, Reliance Nippon AMC etc. Therefore, when any good stock falls sharply which is neither a traders favorite stock, nor a operator operated stock, it may possible for you to find some shares facing difficulty to recover. It is because generally AMCs neither use Public money for trade purpose nor buys sharp falling stocks which may have some hidden problems especially after Gitanjali Gems case.
Therefore, it becomes very difficult for any seller selling the shares in bulk quantities to find some big buyers/liquidity after some selloff. And therefore, whenever a seller starts selling shares in big quantities, it gives rise to sharp falls in such shares. It is not common to see in every good stock but such problems rises eventually during a great selloff.
Whenever such kind of selling pressure have appeared in the shares, it had affected the most to only one group of shareholders i.e retail shareholders/public. Institutions, Mutual funds, or big individual investors always remain diversified and protective because they are carrying a big amount of money which is need to be distributed/kept at different places. Therefore, whenever such crashes occurs, portfolios of diversified Investors fall only 4-6 percent.
But with the public, the situation is not same. Retail investors generally have lower amount of money which they try to multiply as much as fast possible which is not possible through a diversified portfolio. Therefore small investors tries to invest in just 1-3 shares so that his holding value can move up much faster. But whenever the crashes like DHFL, PC Jeweller, Vakrangee, Gitanjali Gems occurs, it impacts the small investors most. And thereafter public just left with a small amount of money.
In such situations, there is no fault of public who wishes to hold just 1-2 shares. But we also can’t guilt anyone for this because in stock markets, everything and every level is possible. In initially days of investing and even recently, I have also loosed some money due to volatility in the markets. I know that Public is the most important part of the markets but it is also true that they have to carry the highest risk possibility.
Now coming back to topic and talking about the DHFL 50 percent fall, firstly these things need to be noted.
- DHFL is not a expensive stock as compare to others Housing Finance listed peers.
- DHFL has clarified that Fundamentals of company are very strong and there is no liquidity problem.
- Even, DSP Mutual Fund have also said that Sale of bonds have no relations to any concern on fundamentals of company. They have sold due to their own reasons.
- The fall in DHFL was so strong that it impacted the whole Financial sector of Stock market.
- Indiabulls Housing Finance also saw same kind of volatility and fell more than 30 percent. But with a direct clarification from Management of Indiabulls Housing, stock saw a sharp recovery also.
There is doubt that those who were holding the DHFL shares in majority have been suffered the most. However, from this fall it doesn’t mean that DHFL will never recover again in Short-term. If the management is saying true and they really have surplus cash balances as compare to requirements, then it could also be a opportunity to buy DHFL at current levels. Because if shares of DHFL remain in a consolidation at present levels for a longer time, Management may consider to bring a Buyback at a good premium to support share price.
Buying in DHFL shares may emerge through private buying also. But it will happen or not is difficult to say.
In case of PC Jeweller also, despite of very low valuations, no buying from big party came in stock. PC Jeweller also announced a BuyBack but later it was withdrawn and that resulted in a massive Selling pressure in company’s shares.
In DHFL also, the situation is much similar like in case of PC Jeweller. Due to panic or some fears of liquidity problem, those who were holding a big chunk of DHFL shares released a big amount in market in a very short time, which lead to a sharp fall in DHFL stock.
Recently, I have tried to find some names of the shareholders which could be behind this fall. And through NSE Bulk deal data, one name which appears clearly as a Great seller on Friday was Globe Capital Market.
At an average price of Rs 350, they dumped off 20 lakh shares of DHFL in market. I didn’t found any other seller name in the list. It maybe due to because it shows only Bulk deals not small or medium size deals.
Is it possible to relate this DHFL move to PC share Crash?
Whatever the reason was there behind this selling pressure, retail investors now needs to know one important thing. Whenever, such kind of selling occurs in shares, it may create a downfall chain which if started may pull the stock of DHFL like PC Jeweller shares, to a very lower levels.
Suppose, A named Investor of DHFL has sold big amount of shares in market after some Rumours. By assuming that he has sold this amount because he was already carrying a large pile of shares before, probably he would now avoid to recover his shares from market because the average price of selling is same as the current levels. Now, that amount of shares sold by A are now in the portfolio of others investors I.e B, C and D. If the Buyback came or any other party/institution entered in the scrip to buy shares, then there is nothing problem and stock would probably recover. But if nothing happened like this and management also didn’t bring Buyback, then what B, C, D will do?
After some time, they would feel tired and they will also start selling their shares of DHFL which may further bring down the share price of DHFL. This process will continue to happen until any new investor invests some good amount of money in DHFL OR the stock found a rock bottom which is generally a bottom where even Public starts buying shares in bulk amount.
This downfall Chain has happened with the PC Jeweller stock which is now trading around Rs 70 from its 52week highs of Rs 600.
Overall View on DHFL after recent crash
By the way, it is not necessary that most of the stocks would fall in this Chain. There are many examples of Businesses whose shares crashed like DHFL one, but get recovered also. It all depends on how the management is and what is in the mind of promoter. If the promoter is really caring and have concerns about its Image/Goodwill in front of investors, he would definitely try to do that things which may bring its share price at higher levels again.
So, overall investors should not assume that DHFL has found its bottom and will not see any further downmove. Such CHAIN REACTIONS which i have discussed above have enough power to make any large cap company a Smallcap company. After all, the Share prices are just the reflection of expectations of investors!
But at same time, if the management and promoter really cares about their shareholders, then I think stock should recover from current levels.
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