Over-reaction today due to leverage in market: Ajay Srivastava

A lot of leverage has been pulled out of the market today, said Ajay Srivastava, CEO of Dimensions Corporate Finance Services, on Monday.

Indian equities plunged more than 3.5 percent on Monday on a broad-based wave of selling, with banking and financial services stocks breathing the brunt. The benchmark Sensex cracked more than 1,700 points, and the Nifty slipped below its key support level of 14,300 intraday.

Market players say a major reason for stock prices crashing is the steep rise in the number of COVID-19 cases in the country. Given the headlines about vaccine shortage in many parts of the country, there are concerns that governments in many states may be forced to consider stringent restrictions, which in turn could hurt economic activity.

Speaking in an interview with CNBC-TV18, Srivastava said, “A lot of leverage in the system has been pulled out today, lots of day traders have been caught napping today and that’s why a severe cut is seen in most favourite stocks. Therefore, to an extent, there has been an overreaction in the market of severe cut of leverage and that will play itself out.”

Talking about sectors, he said, “Banks are in a very tough environment of low demand and while the low demand the RBI’s latest policy of giving Rs 2 lakh on payment cards is a death knell for the banks. So there is a demand compression. HDFC Bank has got disastrous service problem which they need to solve. Therefore, I would be very cautious to trade in the Bank Nifty or banks at this point of time given what is heading our way in terms of the banking industry.”

“The non-banking financial companies (NBFCs) are in a little better position because they have borrowed long at this point of time, they are evenly matched on the treasury side and they are able to get some customers whether its gold loan customers, private customers, share loans have been active at this point of time. Therefore, to some extent, they have been able to retrieve their holdings but to believe that they can grow much more than the banks and that’s the problem; the economy has a growth problem and now it will translate on the balance sheets of NBFCS as well. However, you will have good candidates there but to believe that they will outgrow the industry is very unlikely,” he said.

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