Mid-caps, broking companies plunge on default fears

MUMBAI: Mid-cap and brokerage stocks were ravaged on Thursday as the mounting payment crisis at the National Stock Exchange (NSEL) consumed regulatory attention reviving memories of a bygone era when broker misdeeds frequently contributed to systemic problems at the country’s exchanges.


Stocks such as Urja Global, India Infoline, Motilal Oswal, Sharyans Resources and Edelweiss Financials and over two dozen mid-cap stocks fell between 10% and 20% in intra-day trading though many of them recouped their losses following clarifications issued by some of the companies. Top brokers and analyst said that there were no major crises in the market and Thursday’s mid-cap crash was an outcome of overreaction to the NSEL issue.

“The market overreacted in the morning session about payout-related issues and oversold in many stocks including brokerages,” said Anand Rathi, chairman of Anand Rathi Financial Services. “A lot of broking companies have been active participants on the NSEL, however, there was no payout obligation from the brokerage side as the funds invested were of their clients.”

NSEL, promoted by Financial Technologies (FTIL), said on Wednesday that it was suspending trading in all contracts after the government ordered it to not to launch any new product till further notice. NSEL said that it will merge delivery and settlement of pending contracts and that outstanding positions will be settled by delivery and payment after 15 days.

The announcement triggered panic in the markets as the total outstanding at NSEL was just over Rs 5,000 crore. India Infoline was the biggest loser among brokers on Thursday with its shares declining as much as 20% intra-day on speculation that the brokerage has the maximum exposure to NSEL. It recovered to end at Rs 50.75, up 2.22% after company clarified that it has no exposure to NSEL. MotilalOswal stock also declined 17% intra-day but recovered to end at Rs79.40, up 3%. ReligareBroking said it has no proprietary position in NSEL and that its total client exposure is less thanRs5crore.

“The current situation is just a case of liquidity mismatch and once the exchange starts payout things will improve with more liquidity in the system,” said Deven Choksey of KR Choksey Securities. “However, the market is more concerned about the security of money and at the same time is concerned about receiving that money in hand.” While the benchmark index Sensex declined 28 points, or 0.15%, the BSE Midcap index plunged 1.67%.

Edelweiss Financial said that “we would like to state that Edelweiss Financial and or its subsidiaries, do not have any position, whatsoever, on NSEL”. Edelweiss fell 8.33% intra-day before recovering to end 1.17% higher at Rs30.35. VIP Industries and Kirloskar Industries suffered the maximum among mid-cap stocks, falling 11% and 13%, respectively.