Cracks in the money market that started with IL&FS Group’s default last year widened in June after mortgage lender Dewan Housing Finance
Ltd. delayed debt payments. The credit profile of Indian firms slumped to the lowest in 16 months, a Care Ratings
index showed, as the cash crunch led to rating downgrades.
The risk-off mood is “partly fueled by a number of downgrades and defaults,” said Kaustubh Belapurkar, director of manager research at India unit of Morningstar Investment Adviser. “Any change in this sentiment doesn’t seem to be around the corner.”
Proposals made by Finance Minister Nirmala Sitharaman
earlier this month to soothe the frayed nerves may have little impact. The minister proposed a slew of measures to tighten the regulation of shadow lenders and to ease their liquidity squeeze.
“Still, outflows could continue for some time,” Belapurkar said. “It’s completely risk-off trade that’s happening right now.”