A Brief summary of the Micro/Small/Midcap Carnage

(Raj A A) #300

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

(Raj A A) #301

(sarmams) #302

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

(Ankur Lakhia) #303

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.

(Devaki Nandan Tripathy) #304

Even though equity boom bust cycles across markets are correlated, they are not exactly synced. For example, US market had a high on September 2007 and started correcting thereafter. But, emerging markets kept hitting new highs for two/three more months.

Yeah it seems highly probable. Informed hands seem to be unwinding long positions ruthlessly, though this by itself is not a sufficient reason for market crash, it would be wiser to keep this in mind while creating longs.

Geologically too, before a large earthquake, the rate of micro earthquakes increase exponentially. Similar things seem to be happening in financial markets too. Yesterday there was a report that London home price crashed to a decade low. Today there was extreme volatility not only in Indian markets, but in Hong Kong currency markets too. These events by themselves don’t indicate any trend. But it’s their clustering together in a short time frame that raises red flags, IMHO.

(manivannan.g) #305

Well written article on the reasons for today’s crash:

(nerolu_praveen) #306

My two cents!

I may sound a bit contra! When one owns a company/stock thats is heavily owned by institutions and we have a bad news like Yes Bank, India Bulls or DHFL, a retail investor like us can never escape from the carnage. That’s the very reason, owning a good business thats are less talked about/not owned by institutions makes a good sense.The impact of overall market fall will be felt by the less talked about companies but they bounce back much faster.

(Raj A A) #307

IL&FS crisis has triggered this week’s weakness in the markets. All is not well for the Infra sector. Read on.

(Mahendra243) #308

I havent found out a thread on DHFL…so anyone who is following can share ideas as if there is really a distress at DHFL?

(lastgenesis) #309

I would not like to comment on DHFL specifically, don’t have a high opinion of the management but as a sector or as a theme, valuations aside HFC’s are among the most stable and safest businesses in financials. Delinquencies have historically been low, loan/ asset ratios are favourable and since there are so many threads talking about long runways, this sector more than most has strong potential for multi year high levels of growth. There has not been any bubble in real estate prices in the last 2-3 years that might have caused over leverage on the retail side and put these metrics in danger.

Further psychologically a home loan is among the last loan one defaults on. The only danger I see in the HFC space is for the guys who have high exposure to builders on the corporates portfolio if quality of book is poor.

Anyway if there is a meltdown in NBFC’s it is unlikely to start from the safest asset class is it? Overall market may be overvalued for the immediate term or so but fundamental doubt to HFC’s as a business model is tough to support with logical evidence.


How many systemic crisis have happened due to auto loans/education loans etc? Housing loans have been chief reasons for many debt panic worldover. It is wrong to assume long period of stability in home prices as new normal. Home prices were in an uptrend so naturally everybody would like to protect the asset but it can’t be a perpetual thing. Sometimes we will have to consider the liquidity of the asset in the market. Homes are not so liquid as folks assume. Try selling a home/plot of land or an apartment in down market and you would realise liquidity of the real estate market. In a severe downturn, HFC remain the most vulnerable along with Corporate lenders.

(lastgenesis) #311

My comments were pertaining to the Indian context, globally whenever an HFC bubble has happened it has always been preceded by rapid increase in asset values (which is not supported by fundamentals, i.e. investment buying simply to take advantage of the delta in asset price), high amount of leverage and decline in risk management practice by lenders (i.e. sub prime lending etc).

Which of these factors are present in Indian markets today? Home prices in most major markets are stagnant or declining since 3-4 years, in some places they have increased along with inflation rate at best. This stagnancy may be on account of high increase in previous years but I doubt the increase of 2009-2014 will cause a loan problem in 2018.

Secondly to my knowledge all lenders are insisting on 15-20% equity by borrower and because some part of property is often purchased in cash, actual proportion of equity is even higher. When the USA sub prime crisis happened loans were being given with pretty much zero equity. This is obviously an disincentive to default. From my personal experience in taking home loans I don’t feel there is any laxity in lending standards either!! So where will the systemic housing crisis come from in India?

(Raj A A) #312

Is this the beginning of bear market?

Opinion by Sunil D @marketsmojo.com

On Monday, Sensex lost more than 500 points, and then on every trading day this week, the market ended in the red. We lost 1250 points on the Sensex this week.

The way market behaved today scared investors. Many investors are asking – Is this the beginning of bear market? How does one explain so much volatility in the Nifty and Sensex? On Friday, at one point of time, Sensex lost more than 1100 points, but later recovered with a loss of 280 points over the previous day’s close. This market poses real danger to the NBFCs, who were the darling of the investors till the previous trading day. In last few years, these NBFCs created huge wealth for the investors, but today found no buyers even at lower levels. Dewan Housing Finance (DHFL) stock was down by as much as 55 per cent intra-day (as it’s in F&O, hence no upper or lower circuit) and recovered some ground after the management clarified that there is nothing wrong with the company and also, they have no exposure to IL&FS. But the stock still closed at 42 per cent down from the previous day’s close, suggesting that the market is no mood to buy the story. India Bulls Finance also came under pressure and closed the day with 8 per cent loss. Almost all NBFCs came under pressure on Friday, including names like Bajaj Finance and M&M Finance. The market could not figure out why there has been sudden pressure on NBFC stocks. It would take some time before one can come out with credible explanation for this fall. Yes Bank, which is part of the Nifty and Sensex, lost 29 per cent on Friday, but it was expected that it will fall as RBI did not extend the tenure of Rana Kapoor as CMD of Yes Bank for three years, but the quantum of fall surprised the market participants. Rana would step down by January 2019 and the management will have to find a new CMD by then. It is not very clear at this point of time whether Rana would continue as a director on the bank. The carnage was equally severe on mid-caps and small-caps as Nifty Smallcap 100 was down by 3.53 per cent and Nifty Midcap 100 was down by 2.43 per cent.

Volatility has gone up

When the markets closed last week, there was some kind of optimism, as, during the weekend, the government was expected to announce some measures that could help lift market sentiments. The government did announce some measures to stem the fall in the value of the rupee, but that did not help lift the Sensex. On Monday, Sensex lost more than 500 points, and then on every trading day this week, the market ended in the red. We lost 1250 points on the Sensex this week. In fact, the September month is turning out to be the worst month for the investors, as on two occasions out of 13 trading days, Sensex lost more than 500 points and on one occasion it lost 468 points. In the month of September, Sensex lost 1800 points and we are still nine days away from the end of this month. One thing is certain that the volatility in the stock market has increased. When volatility increases, the market moves sharply on either side. This time around, it is on the downside. The general sentiments have taken a huge beating and this is not something good for the market. The situation is more worrisome for the mid-caps and small-caps as these have seen some major falls.

The advance-decline ratio is worsening. There are more declines than advances. In the month of September, for Nifty 100 (consisting of large-caps), for every one advance, there were four declines. The situation is worse for the mid-caps and small-caps where for every one advance, there are eight declines.

So, is this the beginning of 2008?

Now that brings in the question: Are we in the bear market? The answer is NO. While we may see some more corrections in the weeks and months to come, I don’t expect situation like 2008. There are a couple of factors that make me believe this. First, India Inc earnings cycle is on the revival path (unlike in 2008, when it had peaked). It means that the earnings growth will keep the investors interested in the market. Second, we have a strong government at the Centre which is assuring that the fiscal discipline would be maintained. With the fear of the united opposition taking on the Modi regime fading (as Mayavati tied up with Jogi in Chhatisgarh and fighting on her own in MP), it increases the probability of Modi government retaining power in the next general elections. While I do expect domestic inflows to reduce, I don’t expect outflows. While there was froth in the NBFCs and private sector banks, many of the sectors and companies are not in the expensive territory. That means there could be sector rotation in the market, but money may not go out of the market. But do expect more pains before we can have a smile back on the investor’s face.

(Paulbiplab) #313

In the time period 2008-17 Nifty (1043-2081) returned on average 5% against a long terms average of 14%. We are in a Bear run and even the idea that we are in a Bull run because of one good year defies all logic.
If one looks at the time period 2003-07, Nifty (1100-6140) returned an average of 41% p.a - I would classify that as Bull run.
I believe that we have a lot of upside and Bull run is yet to start.
So this Bull-Bear fear physios should be avoided.

(Devaki Nandan Tripathy) #314

Counter points:

In its conclusion, the author depends on the assumptions/postulates which are shaky at best. Let me elaborate.

First, there will be earning cycle revival. This term has almost become a cliche as we continue to hear it couple of times a month from 2013 onwards but yet to see it in reality. Another favourite talk of analysts is GDP Growth = Earnings Growth. One can verify the veracity of this idea by looking at the performance of Chinese market in last decade.

Second, opposition will not be united against Modi guaranteeing another term for him. Chattishgarh situation may not be extrapolated as a pan-India trend. With their own survival at stake, I think there is a high probability of opposition uniting against Modi, which may be a game changer in Hindi belt where caste equations are the most important.

Third, lots of stocks that were the leaders in the market cycle are trading around or below their 200 DMA which is a definite sign impending market correction, though how low it gets, no one has a clue.

Fourth, markets mojo are run by couple of Moneycontrol and other finance professionals, whose best interest lies in a continuing bull run.I am not questioning their credibility, but rather I am doubtful about their objectivity, especially when their own interest is involved.

After all, how many MF advisors advised their clients to avoid invest in equity and wait till markets cool down a bit in 2007 or late 2017?

(rvetri) #315

The 2008 type bear markets are decided by the world… Not we, Indians… When we say - our earning cycle is going up and our growth is for sure - is a perfect setting for a bear market to begin…

Not saying it will happen… Just saying - it is not in our hands and minds…

(rvetri) #316

Good points by Devaki… We must not listen to an advice from someone who has a vested interest in giving a particular type of advice… It is like asking a barber - do i need a haircut… The answer is obvious…

(Devaki Nandan Tripathy) #317

Things do not seem as bad as the author thinks. But still a good contra view for bulls.

(Aravind) #318

Wire has been predicting crash of the economy since 2014. Their reporting is motivated to put it very very mildly.

The solution talked about will only result in unintended consequences.

(tkmagesh) #319

Wire is desperate to have a meltdown in India.