MUMBAI: For Asia equity investors in search of volatility, there’s no need to buy US pot stocks. India has its own wild ride.
The turmoil in India’s non-bank finance firms has triggered swings in the nation’s stock market that make the recent moves in US pot-related shares look like a walk on the grass.
Volatility in the S&P BSE Finance Index has soared to the highest level in almost two years, with stocks such as Dewan Housing Finance Corp fluctuating an average 26% in the past three sessions, more than the 19% move in Tilray Inc.
Investors have been on the edge since Friday, with a default by Infrastructure Leasing & Financial Services Ltd sending jitters through the US$2.1 trillion stock market and erasing more than US$8.5bil from the value of the financial gauge. The rout has added to investor concerns over the impact of higher oil prices and a tumbling rupee. Indian shares, which until last week were this year’s best-performers in the region, have lost their top spot to New Zealand.
The anxiety over a possible liquidity crunch for non-bank finance companies, which typically borrow in the market to on-lend, wiped off US$1.3bil in value for Dewan Housing, one of the most-hit stocks, in three days. In North America, fortunes were made and lost in hours on pot shares such as Tilray and Weed Inc.
For India, the sudden plunges show traders are getting nervous as adverse news flow hits an expensive market, UBS Group AG said in a note this week.
“If this is a temporary liquidity squeeze or a potential new credit shock remains difficult to gauge,” analysts led by Gautam Chhaochharia wrote, advising clients to not buy the declines.
“While unlikely a systemic issue, we worry about a negative feedback loop developing, given rich valuations.”— Bloomberg