Market Crash—A Bolt From The Blue!

The abrupt and unexpected crash in the market on Friday caused panic among the investors who were totally dumbstruck by the sudden precipitous fall in the markets. While the bears rejoiced, the bulls ran helter-skelter trying to seek a place to hide to protect themselves from the sudden bombardment that came down like a bolt from the blue. A lot of investors holding long positions lost heavily in the carnage, while it was a windfall gain for those holding short positions.

The fall, as it turned out, was triggered by concerns over imminent default by non-banking financial firm IL&FS and over news that DSP mutual fund had sold securities of housing finance company DHFL at a higher yield. IL&FS has already defaulted on interest payments of Rs 250 crore on bonds, while the sale by DSP MF triggered fears that DHFL may be facing liquidity crunch and heading the IF&FS way. These two events had a cascading effect on banking stocks such as Yes Bank, which tanked following MD & CEO Rana Kapoor’s imminent exit by January 2019, as well as housing finance stocks such as Indiabulls Housing Finance, LIC Housing Finance and GIC Housing Finance.

However, it will be too early to conclude that the steep fall in the market signals the onset of the much-awaited correction. As of now, the market appeared to have reacted in a knee-jerk fashion to the negative news emanating from the financial sector, but the fact that the market recouped most of losses during the latter part of the trading session indicates that the crash was triggered due to panic selling and not because the markets fundamentals had worsened. So, one can hope that the party will keep going till the dust of General Elections rises on the horizon.