The Prime Minister’s Office (PMO) has reportedly sought a probe by markets regulator Securities and Exchange Board of India (SEBI) into the stock market crash in September and October, which it suspects was perpetrated by a bear cartel which vitiated market sentiment following a crash in major non-banking finance company (NBFC) shares, sources aware of the development said.

Sources told BusinessLine that the PMO has in particular sought details related to the fire sale of Dewan Housing Finance’s (DHFL’s) AAA-rated debt paper by DSP Mutual Fund timed just days ahead of September series derivative expiry, and the subsequent 60 per cent crash in the company’s share price.

On September 21, panic struck India’s stock markets as DHFL shares fell like a pack of cards. The share plunged almost 60 per cent intraday, dragging down the shares of other housing finance companies as well.

By close of trading that day, DHFL had lost ₹259.05 or nearly 43 per cent, wiping out over ₹10,000 crore of the company’s market-capitalisation.

This triggered panic, causing an over 1,100-point fall in the Sensex, before clarifications by the DHFL management helped reverse the Sensex’s fall.

Although, the IL&FS financial mess had already come to light in late August, key equity indices were near record highs then and the markets were hit only after the crash in DHFL and other NBFC stocks, senior officials in PMO reckon.

Sources said the PMO wants to know what led DSP to sell DHFL debt, even when fund officials reportedly admitted there was no redemption pressure. In a media interview the day after the DHFL crash, a DSP fund manager had said flows in the fund were in line with market and there was no redemption pressure.

DSP’s average AUM stood at around ₹95,000 crore, which was nearly same as August, the manager said. He also said DSP was still holding DHFL papers worth ₹800 crore.

Trading pattern of FPIs

According to sources, the PMO wants to understand the trading pattern of foreign portfolio investors in DHFL, other NBFCs and banking shares, in the days immediately preceding and after September 21.

They want to know the kind of derivative positions that were built up and whether there was short selling on September 21 in the cash segment. Net long positions were high in index futures and the timing of sell-off in debt markets led to massive unwinding in equities.

While both SEBI and the PMO did not respond to emailed queries on the subject, DSP, in its reply to BusinessLine said, “We have received and replied to a query from SEBI regarding specifics of (the) DHFL transaction. We believe this is routine and we have answered similar queries from SEBI in past.”

DSP also sent a note on DHFL. “There were comments that 9 per cent bond was traded at 11 per cent. 9.05 / 9.10 per cent is the coupon of traded bond and not its prevailing market yield. Prior to our trade, this bond was traded at 10.25 per cent and its bid-ask was at 10.50-11 per cent. Irrespective of this sale, industry-wide NAVs would have captured these levels for valuing these bonds.

“For an issuer that has large amounts of outstanding bonds and is widely held across industry, sale of short dated bonds of only ₹300 cr in a bid-ask of 10.5-11 per cent is not material enough to have a cascading impact across asset classes. We have not done any distress sale of assets.”