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Companies with high debt bore the largest brunt of the market, itself reeling under pressure due to a weak monsoon forecast and waning hopes of further rate easing. Shares of some of the big names in real estate and construction business, including Unitech and JP Associates, slumped as much as 35 per cent to multi-year lows.
The collapse was triggered by speculation that leveraged companies were facing repayment defaults, with high level of shares pledged by promoters in some of these companies intensifying the fall.
Shares of New Delhi-based property developer Unitech crashed as much as 52 per cent, while that of JP Associates slumped about 30 per cent in intra-day trade. Both companies denied they were facing any repayment-related issues. Shares of Unitech closed the day at Rs 8.7, down 35 per cent, and Jaiprakash Associates fell 21 per cent to Rs 13.05.
The carnage spread to other debt-laden companies such as IVRCL, Hindustan Construction Company, Reliance Power, Adani Power, which dropped more than 10 per cent each.
"The default rumours caused a chain reaction. Investors in other debt-heavy companies also headed for exit," said Ambareesh Baliga, an independent market expert. "Market sentiment is weak and further correction cannot be ruled out."
The common thread in the worst-performing stocks in the BSE 500 index on Wednesday was high debt and stretched debt-to-equity ratio.
Unitech, however, said in a statement on Wednesday its debt was at "manageable levels" and said the payment default talk was "false and misleading".
"Rumours are being spread by certain segments of the market to profit from trading pertaining to Unitech defaulting on repayments to certain lenders, which are false and misleading," the company said. "Unitech has, in fact, significantly ramped up its execution capabilities and expects to increase deliveries considerably this year." Its debt-equity ratio was one of the lowest in the sector, the company added.
Jaiprakash Associates, too, denied rumours of default and share-pledge revocation. It said the fall in its stock price could not be attributed to any development linked to the performance of the company.
Market experts said uncertainty on whether the Reserve Bank of India (RBI) would continue cutting the repo rate had soured investor sentiment towards rate-sensitive stocks, especially in the realty sector.
Dhananjay Sinha, head of research, economist & strategist at Emkay Global Financial Services, said, "The hawkish stance by the RBI and expectations of only a gradual recovery is reflecting in the market sentiment."
He added debt-laden companies were always vulnerable to such steep corrections and investors would still be better off staying away from these.
