Sensationalist and mostly nonsensical allegations from Cobrapost allege that 25% of DHFL’s book is a sham however DHFL has not defaulted on a single coupon nor has there been any spike in bad loans yet its shares are in a free fall.
One is simply a text book case of reflexivity , since prices are falling by the day , investors think that something bad must have happened to the company , this begets more selling and so on. Important to recognise that for this to happen the fundamentals need not have changed at all. The simple fact that prices are falling is enough.
During the 2008 financial crisis, something similar happened in the US. Vicious rumors were spread against Morgan Stanley and Merrill Lynch after Lehman went down leading to cries that rumor mongering and even short selling should be banned.
However the SEC refused saying that short selling by itself cannot bring down a company if there is nothing fundamentally wrong, all you need is a couple of smart people on the other side to show that they are wrong. Howard Marks of Oak Capital did precisely that with Morgan Stanley.
India however is a different story, generally low quality of analysts and funds who can make 15% a year just by buying Dabur and HUL are unlikely to take risks with companies that are deemed to be facing existential problems. There is simply no one on the other side of the trade, after all why buy DHFL and risk your career when you can buy HDFC for guaranteed returns with no headache?
So you end up with a market with panic sellers and no buyers.
On another note, I think It is also highly likely that the Cobrapost investigation was leaked to certain groups in September itself, there is simply no way a stock can drop 50% like DHFL did just because a mutual fund sold its paper at high yields after IL&FS defaulted.