Shares of HDFC Asset Management Company dropped nearly 7 per cent on Tuesday after the firm decided to provide liquidity to some fixed maturity plan schemes of HDFC MF that have exposure to Essel Group firms.

The move, announced on Monday, assumes significance with the mutual fund industry grappling with liquidity crisis for the past few months in the wake of concerns over ability of Essel Group and IL&FS to meet their debt obligations.

The scrip tanked 6.32 per cent to close at Rs 1,807.75 on the BSE. During the day, it tumbled 6.69 per cent to Rs 1,800.55. On the NSE, shares plunged 6.62 per cent to close at Rs 1,803.70.

Led by the drop in the scrip, the company’s market valuation also fell by Rs 2,589.56 crore to Rs 38,431.44 crore on the BSE. “HDFC AMC fell over 6 per cent as it offered exit to some investors of FMPs (fixed maturity plans) by transferring their Rs 500 crore exposure on to its own books. This was a sentimentally bold move by HDFC AMC as investors were worried about their investments in the midst of this liquidity crises.

“However, investors should be aware that this is a one-off deal inked with Essel and there is always an implied risk with investments where the fund cannot always be the white-knight. However, HDFC AMC has taken a big risk as they have set a trend of assuming credit risks which could turn out to be dangerous in the long term, as this will set expectations for such bailouts in the future which is bad for the investors of HDFC AMC,” Umesh Mehta, Head of Research, SAMCO Securities said.

In a BSE filing on Monday, HDFC AMC said it has decided to provide a liquidity arrangement to certain FMPs of HDFC MF to deal with illiquidity faced by such schemes due to their exposure to the non-convertible debentures issued by Edisons Infrapower & Multiventures and Sprit Infrapower & Multiventures, companies promoted by the Essel group.

This liquidity arrangement shall only apply in case of FMPs which have either already matured in April, 2019 and/or will mature till the standstill arrangement entered into by the company with Essel Group companies is in force, it said. “The liquidity arrangement may involve an aggregate outlay not exceeding Rs 500 crore and will be put in place shortly,” the filing added.

Such liquidity arrangement is in the larger long-term interest of the company and is being undertaken purely as a measure to provide liquidity to the relevant unit holders, it said.

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