Why Is the Indiabulls Housing Finance Stock Falling?

Recently, there has been a significant decline in the Indiabulls Housing Finance stock price, dropping from Rs. 250 to Rs. 180. The company plans to raise funds to address liquidity issues through Financial Curtailment Certificates (FCCBs) or Qualifized Institutional Placement (QIP). However, the outcome of these fundraising efforts and the future stock price will depend on market conditions.

Financial Irregularities and Market Response

There have been ongoing financial irregularity complaints against the company for the past nine months, and no one knows the extent of the impact. High Net Worth Individuals (HNIs), Qualified Foreign Institutional Investors (QFIs), and Mutual Funds (MFs) have been offloading the stock, causing it to drop significantly. Currently, the stock is hovering around Rs. 270, down from its peak of Rs. 1400.

Historical Performance

Indiabulls Housing Finance has a history of fluctuating stock prices. Since hitting its peak at 1400 in August 2018, it has experienced several downfalls, including hitting this level in October 2017, January 2018, and April 2018. The company also received a death cross signal in September 2018, coinciding with the NBFC crisis, making it a target for short sellers.

Regulatory Hurdles and Proceedings

Indiabulls Housing Finance entered into an agreement to merge with Lakshmi Vilas Bank to obtain a banking license. The competition commission has already approved this, but the RBI is still pending. Despite personal expectations that the RBI would grant approval with certain conditions, the situation has taken an unexpected turn. Today, the RBI placed Lakshmi Vilas Bank (LVB) under Priority Sector Advances (PSA) complex adherence.

Additionally, the company is currently under investigation due to alleged wrongdoings. A court has ordered a probe into these allegations, causing panic in the market and leading to a significant drop in the stock price of over 30%. This has broader implications for the banking system, as many banks have lent to Indiabulls Housing Finance and its group companies.

Market Implications

Considering the broader market and many Bank Nifty constituents trading in the red today, the drop in Indiabulls Housing Finance stock has significant contagion effects. However, it is important to note that there is no fundamental issue with the company itself. In fact, the declining stock price could make it a favorite for traders, but recovery typically takes time.

Conclusion

The drop in the Indiabulls Housing Finance stock is largely due to regulatory hurdles and financial irregularities. While the situation is concerning, it is crucial to monitor market conditions and the resolution of pending issues. Investors should approach this with caution and stay informed.