DSP Mutual Fund has issued a clarification on its sale of DHFL commercial paper which is rumoured to have triggered a market panic on Friday, 21st September. The Nifty closed 0.81% lower after falling as much as 2% intraday. Broader indices suffered bigger cuts with Nifty Free-float Midcap down 2.49% and Nifty Free-float Smallcap down 3.69%.
The commercial paper sales seem to have raised wider solvency concerns in housing finance companies and DSP MF has issued the statement in response to these concerns.
The stock of DHFL fell 44% on Friday and other housing finance companies like Indiabulls Housing Finance also took a knock with an 8.5% dip.
The statement said that the ‘recent sale of debt paper’ was a reflection of DSP MF’s view on duration risk and not credit risk. Duration risk is the risk emanating from rising interest rates rather than creditworthiness. The fund house also also added that it faced some redemption papers, in line with the industry due to advance tax payment requirements of its customers. DSP MF’s Assets under Management (AUM) dropped from Rs 111,912 crore to 106,245 crore, a fall of Rs 5,667 crore.
The DHFL commercial paper sales come in the backdrop of a crisis in the debt issued by IL&FS, a major infrastructure finance company in India, which has several subsidiaries like IL&FS Transport and IL&FS Energy Development. The IL&FS group has a debt of about Rs 88,000 crore. IL&FS recorded defaults on part of its debt in recent weeks and this led to credit agency downgrade on a major portion of its remaining outstanding debt.
Several mutual funds (including DSP Credit Risk Fund) held IL&FS debt and have recorded sharp drops in NAV (Net Asset Value). Some mutual funds have closed their gates to fresh inflows, while the crisis plays out. Meanwhile, IL&FS CEO Ramesh Bawa and four independent directors resigned on Friday (21st September).
You can find the full text of DSP MF’s statement below: