I will be deploying cash in small&mid cap stocks which consumption oriented companies as they offer safety as their products are in demand always despite of problems in NBFC space or any cyclic space.
1 Like
And how would people consume without NBFCs to finance that consumption?
5 Likes
I’ve been silent observer on this thread. I don’t consider myself to be an expert on macro stuff and capable of summarizing market crashes.
However, wanted to share this beautiful post (Cheaters causing crashes?) from Prof. Bakshi that he wrote in 2005. Please read it, if you have not already. It helps to better understand utility of backward thinking and how “information asymmetry” and “sudden realization about stupidity” will create many more future crashes.
Best,
Amit
15 Likes
Thanks for sharing a very nice article.
As you have mentioned, crashes will keep happening. Herd mentality of most of the investors will also continue.
Regards
1 Like
The Small Cap Index has given back all its post demonetization gains. It is again where it was on October 2016. It raises question marks on the oft quoted belief of financialization of savings after demonetization. Interesting times, indeed.
4 Likes
It is not right to see in unification of the whole small cap index. Some stocks are still doing great. For eg. Edelweiss was at 80 during Oct 2016 and even after correction it is at 190 today which makes it a 2 and half bagger. There would be a lot of poor companies in small cap index which would bring it down. But good companies have provided decent or if going on a limb I can say great returns. It just depends on what stocks you buy. Financialization of savings has been successful and you can see that in good companies.
3 Likes
Nero fiddled while Rome burned
One unique feature among all this turmoil in the market is absolute and utter failure of big and respected Funds/Institutions to perform any sort of forensic analysis. In fact fund activism by Indian institutions is totally absent.
HDFC, ICICI, Reliance MF and their foreign counterparts like Barings, Goldman Sachs, Morgan Stanley etc. and others have an investment portfolio consisting of lakhs of crores and respected highly both by market participants and by the managements. Almost all the big names that fell include names like ICICI Bank, Yes Bank, DHFL, Vakrangee, Manpasand etc were heavily owned by institutions. But the institutions not only failed to carry out any sort of forensic analysis, even when they had the resources to do so, they did not even bother to ask incisive questions in concalls. They are not just investors but trustees of lakhs of investors, and it’s their moral responsibility to do so.
So all the forensic analysis were left to individual investors like Arvind Gupta, Amit Mantri and to a lesser extent by diffsoft and phreakv6 of our forum, who must be congratulated for their outstanding work given the nature of limited resources they have. Even for that matter, Rakesh Jhunjhunwala must be praised for his grilling of Lupin/Titan in quarterly concalls, even though he had the stature and financial power to take his queries to the company top management in private.
But our homegrown stars like Prashant Jain, S Naren, Madhu Kela etc just did not want to do the heavy lifting and instead preferred to become the Lords of Macro Forecasting by coming on National TV and saying why it’s our birth right to grow at X% (where, 7 ≤ X ≤ 10) till the year Y (where, 2025 ≤ Y ≤ 2075), where the values of X and Y depending on their mood that day.
61 Likes
From your post one can make an inference that small retail investors (like us) are not at that big a disadvantage when it comes to stock picking and portfolio building. One can see enough examples of big institutions making glaring errors that look foolish in hindsight.
Embrace your mistakes, draw your learnings from them
Do not take yourself too seriously and put yourself on an imaginary pedestal which the markets can conjure up during good times 
Keep your head and standards high, figure out the investing process that you are best at and stick to it
24 Likes
My 2 cents…Market is trying to find pattern in IL&FS default and in extrapolating them into all good companies as well. The business conditions will not be going to be same - when last year small caps were up by 30-40% on an average, no one was complaining. Warren Buffet, the great sage, rightly pointed out ’ Nothing dulls intellect like easy and free money’. The party had to stop sometimes. ‘If one cannot stomach 50%-60% drop in portfolio at times, one should not be in investment business’ - says another ‘sage’ Charlie Munger. Market will be volatile, plethora of TV analysts/reports adding ammunition to this chaos. My take would be to use this setback as buying good NBFC & other companies in small chunks (esp if one has some free capital). Jesse livermore has 2 famous quotes :
“The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
Lets analyse businesses and see if business conditions have changed. Sometimes we win, sometimes we learn
Btw one good book on behavioural finance (which to summarise tells - we are our worst enemy as investors. Whatever helped us survive in ancient times, the same skills are killing us in investment).
http://csinvesting.org/wp-content/uploads/2012/07/the_little_book_of_behavioral_investing_how_not_to_be_your_own_worst_enemy1.pdf
5 Likes
I think there are concerns on systemic availability of short term liquidity - RBI is in a Catch 22 situation where it cannot fully accomodate markets while simultaneously defending the currency and managing inflation. In the event of a liquidity crunch and their recent actions on Yes Bank and Axis, it is also unclear what price RBI will extract in case of a liquidity bail out, and whom it will choose to save. Skeletons in the closet are being priced in, and I’m not sure the falling prices seen recently can be solely due to individual investors exiting - indicating nervousness on part of larger institutional players who are also represented in the money markets. As we have seen with the NPA crisis, there is a domino effect that unravels over many years, and there are 2 critical things coming up for unravelling - power sector and v unexpectedly, NBFCs - the cross web of exposures is not understood yet and wide spread counter party risk is what is likely being priced in now.
PS: Leaving a link to Financial Stability Report published periodically by RBI, as per FSB standards. The link is to the section on systemic risks on account of interlinkages in the system - if you scroll to the last few pages, it covers interconnectedness of banks, NBFCs, AMCs, Insurance and HFCs and likely fallout predicted by stress tests and contagion.
https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=902
1 Like
I don’t know whether it is the proper place to post this article or not, but if the jokes and funnies thread by @diffsoft were alive, it would have surely found a place there.
Found this on Bloomberg.
Infibeam is an operators paradise. I have seen a number of times this stock go up and down by 50% in a day. Another stock I find bad is Indiabulls ventures which kind of puts a bad light on the whole Indiabulls group. The stock ran up from 30 to 900 in a year! That would be one reason to avoid the whole group. Have no idea what’s cooking in these stocks.
3 Likes
A nice read.
http://www.nooreshtech.co.in/2018/09/smallcap-index-cycles-2005-2018-its-darkest-before-dawn.html
2 Likes
RBI to conduct OMO for 36k Cr in Oct. Pretty proactive and this should lower yields on 10Y G-Sec and so should be good for financials and equities too in general.
3 Likes
Just thinking it out in a simple way…
Does rbi infusing 36000 cr into equities really help…
Today bandhan bank alone went down 20%…
Market cap erosion of around 14000cr…just one company…
RBI is not infusing 36000 cr. into equities, it is going to buy government bonds worth that much from open market. Government bond holders are banks and mutual funds which will get liquidity from selling it to RBI. This in effort will create the supply of money to big lenders and softens short term interest rate.
11 Likes
Thanks for the correction…
Let me rephrase the question…
Few months bank govt had promised recapitalisation of psu…
Upto 20000cr …in phased manner…
But is it sufficient to repair the health of psu’s…
Wer pnb alone had faced issues of 10000odd crores …
My question is is it enough…??
Ilfs has debt of around 1lakh crores…
Never one cockroaches in the cupboard…
Few more companies come to light…this 36kcr becomes nothing…
Thatsmy point of view…
Il&fs total payment due this financial year is about 500 million dollar that comes to 3600 crore.Total debt of il&fs is about 90000 crore.Il&fs issue is liquidity problem which it has planned to solve by selling its assets and no one is sure how much of assets can be monetize in what time frame, creating fear in the lenders for further default not only by ilfs but other as well. The lender starts conserving cash and tighten the liquidity to sail through this time leading to increase in borrowing cost for capital intensive sectors.
This entire cycle is vicious loop which will aggravate the liquidity further. To not go this situation out of hand and make the matter worse, central bank, government starts buying their own bonds to infuse cash into the system. Government cant infuse lot of cash into system without increasing its own fiscal deficit.Generally in these situation government tries to infuse cash which is enough ( at least it think is enough) for short term period.
Government cant keep correcting mistakes of industries by infusing people’s money. The long term solution would be selling assets of defaulters, the steps towards it already taken by present government by bringing in the changes in new bankruptcy code.
2 Likes
Any views on this??
Not okay, Government should not interfere with market forces.
Then why not all bankrupt companies?