A Brief summary of the Micro/Small/Midcap Carnage

Agree. But what is the basis for PayTM Investment ? A hugely loss making company…and now all biggies will be vying for market share…

Berkshire Hathaway’s Market Cap is $520.50 Billion. The investment in PayTM is $400 Million or so. So in essence, the investment is 0.08% of the company’s market value. The deal is simply too insignificant for Warren Buffet to intervene. In fact, Berkshire Hathaway has specifically clarified that Warren Buffet had nothing to do with the deal.

Warren Buffet himself stated that it was Charlie Munger’s idea to invest in PayTM. In fact, given that Todd Combs has joined the board of PayTM, it is most likely his idea in the first place.

There are some speculations about whether Berkshire Hathway can use PayTM’s business model to generate substantial amounts of “float” to fund its own investment purposes. I personally doubt whether the RBI would allow such a thing. We’ll just have to wait and see.

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Dont know the relevance of connecting Warren buffett with paytm. But out of the two legends according to me charlie is phenomenal when it comes to the use of various mental models and intelligence. He is more underrated but offer lot more to learn as compared to buffett , specially practical advise to be a better and learned person each day. Rest everything just follows

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Hi

True. There is no way the float benefit can accrue from a payments business in India as per RBI regulations. The so called float has to always be in an escrow arrangement with a scheduled commerical bank in India. The regulations to take care of customer and merchant interests are actually quite good. And I think RBI has done an excellent job in doing so. I personally have seen half a dozen good improvements in the last 5-6 years.

Rgds

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As I’ve mentioned, the Investment is too insignificant to amount to anything. I could have personally made that call and it still wouldn’t have made so much as a dent in Berkshire Hathaway’s Value.

They could be testing waters by exploring the Indian BFSI landscape (Todd Combs did become a Board Member in PayTM). They could have thought that using Berkshire Hathaway’s knowledge in BFSI, they could turnaround PayTM. Or it could be a dozen other reasons.

All I’m trying to say is that the investment is too small to warrant a feverent discussion.

I was thinking along the lines of PayTM becoming a true ‘digital bank’ like they’ve been trying to do for over a decade. If at all they’re able to pull it off, there could be a possibility to generate a float. The RBI would still be strict about using a bank’s money for acquisitions.

Alternatively, I just thought about this. BH’s Ajit Jain was tasked last year to study the insurance industry in India. I remember Mr. Buffet saying that he’s the right man for the job. This could have something to do with the acquisition (Digital insurance?) But given Buffet’s distance from this deal, I doubt this is the case.

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Looks Scary
Goldman Sachs indicator designed to provide a “reasonable signal for future bear-market risk” has risen to highest in 50 yrs

Bull/Bear Index, based on measures of equity valuation, growth momentum, unemployment, inflation and the yield curve, is now at levels last seen in 1969.

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Is this for the US market or the Indian market?

It is not explicitly mentioned. i do not think it is India’s specific. This is to be taken with the pinch of salt.

This is US specific information. But, a better question would be, what is the correlation between Indian and US markets? Considering last few decades of BSE Sensex vs DJIA chart, it seems they are highly correlated.

EM stocks are the favorite whipping boys of any global fund manager. As LTCM episode of 90s or Bear Stern/Lehman collapse of 2008 has proved, emerging market stocks are dumped en masse at the first sign of investor panic and market crash.

Yes… that’s exactly why I asked. Historically, it’s true that EM Markets have taken a toll during DM Markets crashes. But now… the dialogue seems to be in favour of EM Markets:

https://www.google.co.in/amp/s/www.bloomberg.com/amp/news/articles/2018-07-06/this-metric-shows-emerging-market-stocks-are-cheap-cheap-cheap

https://seekingalpha.com/article/4196879-emerging-market-stocks-looking-cheap

There was also an article about a famous value investor endorsing EM equities as well, which I can’t find right now.

I don’t want this to look like a “this time it’s different” conversation. But it does look like it’s going to be a little different this time.

The third wave is in motion now. Let’s see how low it gets before stopping.

Carnage in Housing Finance today:
DHFL (-52%), Gruh (-17%), IBHF, Repco, PEL, BajajFinance, Can Fin etc.
What could be the reason?

Looks like a complete flash crash in progress! Exciting times :slight_smile:

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No its not a flash crash. Institutional market participants understood that the numbers behind some NBFCs were too good to be true. They kept making money on the long side while they knew true state of affairs.

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend and step off before it is discredited" - George Soros

IL&FS is a ponzi scheme and lot of subsequent skeletons will tumble.
Yes bank CMD being replaced is the tirgger and this means that possibly RBI will be conducting an audit on all NBFCs with too good to be true NPA figures

I am just sharing my opinion so please don’t accuse for rumour mongering.

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Lots of multiyear supports have been taken out. Upturn may not be as swift as market participants expect.

With MF inflow falling day by day and FIIs unwinding carry trades, no strong hands to support the market. Today’s low will be tested and may be taken out subsequently.

The Modi trade seems to be unwinding. :grinning:

Its not just the NBFCs - This was the state of Midcap index today - Down almost 8% intraday and recovering.

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Market grapewine says that rumours about DHFL bond sale flopped has triggered the panic selling.

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With todays fall in NBFC stocks, I am reminded of Soros reflexivity theory. An MF tries to sell DHFL paper (secondary sale) and market turns upside down reacting to the hike in yield by fund house (I hope it was just noise and not an on coming train). This small crack may open Pandoras box in NBFC space in coming days and dry up liquidity/hike borrowing costs for the NBFCs, which will result in further fall in these stocks (though, that may create a buying opportunity in some of the quality picks). Just a contrarian thought and I may be wrong. Cash remains king in these interesting times :slight_smile:

disc: not invested in DHFL

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What happened today is not normal & it is not just today. Through out this week, Indian market has fallen. This is contrary to what is happening in rest of the world. US market is hitting new high. Even, other emerging markets and Asian markets are up in last two days. But, India is stand out and falling. But then, India was supposed to remain rock steady even if global markets fall due to SIP into equity mutual funds.

I am hearing now that all is well and market has fallen due to rumors & it was just a fund trying to sell bonds & had to pay higher yield.

Whatever may be the case, I am not able to ignore today’s price action. This could be just beginning of the end of bull market in financials and if financials, being poster boys of this bull market, are done with then we are done with this bull market as well.

We will know in next few days & weeks but it looks like time for bear watch.

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