InvestorQ : Is it true that the Sensex fell sharply on policy day due to the NBFC issue? What exactly is this NBFC problem and why is the market so worried?
Khushi Patel made post

Is it true that the Sensex fell sharply on policy day due to the NBFC issue? What exactly is this NBFC problem and why is the market so worried?

Answer
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Anjana Aiyar answered.
1 year ago


You are right that the markets reacted in a sharply negative manner post the policy. You are also right that the correction was only partially due to the policy and more due to the NBFC crisis. In fact, in the June Monetary Policy when the RBI announced a 25 basis points rate cut, the expectation was that the markets would react positively. More so, considering that the RBI had shifted the stance of the monetary policy from Neutral to Accommodative. Despite these triggers, the Sensex cracked by 554 points; the biggest single day fall in 2019. While the worsening global trade war was one reason, the immediate reason was the vulnerability of the key NBFCs in India. What is more; these NBFCs have borrowed billions of dollars from banks, mutual funds and pension funds and could actually pose a systematic risk. Just to give you a picture, IL&FS and Dewan Housing have a total debt exposure of Rs.200,000 crore put together. That is almost close to $30 billion of extremely stressed assets and there may be many more such cases. That is what the markets are now really worried about as it will again lead to bad loans and defaults.