A Brief summary of the Micro/Small/Midcap Carnage

(Dazzled beginner) #340

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…

(ashish) #341

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.

(Dazzled beginner) #342

Any views on this??

(Paulbiplab) #343

Not okay, Government should not interfere with market forces.
Then why not all bankrupt companies?

(Dinesh Sairam) #344

It’s the age old question of “If you’re driving a faulty truck and have to choose between saving 100 people and saving 1 very important person, what would you do?”

ILFS is a Systemically Important Institution. In fact, several other Systemically Important Institutions either hold stake in the company or are Debtors to the company. Letting it fail will cause massive job losses and put a large dent in the country’s growth plans.

Capitalism is great in theory, except the cost of capitalism is sometimes very high. I’m equally appalled that the whole debacle almost caused a credit crisis, but saying that the government should do nothing about it is criminal.

(phreak) #345

Three things first.

  1. The govt. has nothing to do with this as that would imply RBI is not autonomous.
  2. If anything the govt. can pressurise LIC to pick up stake in IL&FS which it seems to be doing.
  3. Also, RBI is not interfering in IL&FS debt.

They are doing open-market operations which they do from time to time buying govt. debt (G-Secs). This is usual stuff except, this time they have informed ahead to ensure there is no liquidity panic. Bringing G-Sec yields down will however benefit everyone indirectly as corporates can borrow lower since the govt. is not crowding out the debt market and since the G-Sec yields are a sort of a risk-free benchmark, it reduces the rates for the corporates as well. If risk-free rate goes lower, this is sentiment positive for equities (cost of capital/discounting perspective) and that’s all there is to it.

(sarmams) #346

I beg to differ here. Every govt institution finally ends up being systemically important in the whole scheme of things. Yesterday it was IDBI, today ILFS, tom it can be a larger FI…and rescuing at every fall only reinforces the bad behavior in the system… Having worked in one of the largest FI in India in the past, I can say regular govt intervention in such matters only worsens the affairs and would lead to bigger failures in future.

(Dinesh Sairam) #347

The Fed rescued several SIBs during the 2008 credit crisis. It was an unpopular move among many in the economics circle. But again, they took the call anyway, and did wonderfully to lift the US from the dumps.

I agree with the fact that it breeds Moral Hazard, but if I had to be honest, a majority of the Public workforce operates with a Moral Hazard. I’ve seen it personally, working with the largest PSB in the country (Yes, that one). The solution here is a complete overhaul of the system, which I’m not sure is possible with a quasi-social set up like ours.

(test) #348

This is India’s Lehman moment. The government is to be commended for taking decisive action in the ilfs saga. Failure to do so would have spread fear and contagion in financial and credit markets in India which would have resulted in much larger impact and losses in overall system. The lesson from the Lehman affair was unambiguous : prompt intervention by authorities saved the financial system and economy from larger losses. Ilfs case is not comparable to psu bank case. Psu banks are stuffed with rotten assets while ilfs suffers from asset liability mismanagement i.e. Credit issue versus liquidity issues

(sarmams) #349

We never know the so called alternate history, which had never happened. In the hindsight, we are able to connect the dots and laud the practice of rescuing a behemoth and the aftermath events. May be who knows, if IL&FS was left to itself, it would have set a different example here and would have changed the Indian Financial system a bit (of course in the right direction). That chance is definitely not there now and this effort I am sure would only encourage further reckless behaviour in the system. What we learn from history is, we never learn anything from it!

(phreak) #350

True @sarmams. The biggest financial crises India will ever face will be when LIC is run into the ground.

(paresh.sarjani1) #351

This makes me laugh…

I am missing Raghuram Rajan… Had he been here… This mess won’t have happened

(Mahendra243) #352

Brent at 84$ will ruin any party

(s) #353

It is a systematic built up so doubt if any one could have stopped it. The system has so many loopholes that the regulator are the last one to realize it. For a change the bold steps by Government and RBI brought out rats like Nirav Modi, and other companies who have been milking the system for growth and personal use. There were so many un listed companies ready to help Chartered accounts whose only purpose in life is to build up schemes to sub vert taxes or siphon off money from system. It is a wake up call to plug sinking holes in economy and remove unproductive liabilities is an ongoing process. The continuous momentum is the only way forward.

(test) #354

No offense meant sir but we know what happens if one is permitted to jump off a cliff… I am saying this simply to emphasize the seriousness of the situation. As raghav bahl mentioned in his recent article in bloomberg, financial fires need to be put out or contained first before doing anything else.

(Dazzled beginner) #355

Check out @suchetadalal’s Tweet: https://twitter.com/suchetadalal/status/1046588498982002688?s=09
Check out @Moneylifers’s Tweet: https://twitter.com/Moneylifers/status/1046781701496557569?s=09
The last part of the interview was my whole concern… Any counter arguements are welcome

(Raj A A) #356

ET_Mumbai Edition_Oct 02, 2018
October is the Most Scary Month Along with


Boo! October is here, and that inevitably means fear of stock-market crashes. Whether it is the Great Crash
of 1929 (Black Tuesday) or the 23 percent one-day crash of 1987 (Black Monday), October has some
scary history behind it.
But when we look at the full century of crashes, October is much less frightening than its reputation.
Let’s look closer at the usual fearmongering suspects on the internet, to see if there is anything to their
annual angst. Two things we should be aware of regarding “the most dangerous” of all months: historical
patterns imply elevated levels of volatility, and market returns might be disappointing. 1 The problem with
the statistical claims about October is that we have an awfully small sample set. We have about a 100 or so
Octobers to consider – too small a number to be used for drawing hard conclusions. Worse, the underlying
market structure which may be responsible for some crashes has changed dramatically over that century.
This is not a case of this time is different so much as it is a case of changing market structure, including
lots of new ways to execute and settle trades. This doesn’t mean stocks are immune to trouble; rather, it
suggests old market structure issues have been resolved, perhaps in exchange for a set of new and different
problems. Still, markets have been upgraded and modernized, with old creaky plumbing replaced with new
Rather than wait a 1,000 years for a sufficiently large sample size, let’s see what we can say with some
degree of confidence about markets in October during the past century. Much of the evidence doesn’t seem
to support the theory that stocks are especially dangerous this month.
Research firm Bespoke Investment Group assembled the data, and found the worst month for market
performance has been September. October has been on average positive. And whatever softness there has
been historically seems to be dissipating.
Average monthly percentage changes for the Dow Jones Industrial Average for the month of October have
been positive 0.40 percent during the past century, with gains 62% of the time. On an annualized basis,
that works out to a 4.8 percent return for a year. During the past 50 years, returns have been 0.84% in
October, for an annualized return of 10%. The market has also been up 62% of the time in October. And if
we consider just the past 20 years — a period that includes the dot-com bust, the financial crisis and a 13-
year bear market – the Dow was positive in 15 out of those 20 years, gaining an average of 2.5% in
October. Annualized, that would be a 29.9% return — the best performance of any month on the calendar,
according to Bespoke. The Standard & Poor’s 500 Index has behaved in a similar fashion.
This is hardly the stuff of nightmares. Given that the 10th month of the year is much less frightening in
reality than its reputation, what might explain this irrational fear of October? My money is on the
psychological power of anecdotal evidence, and the coincidence of two big October market crashes, 1929
and 1987, and 2008, when the market tanked after Lehman Brother’s failure a month earlier sent the financial crisis into high gear.

As is so often the case, the plural of anecdote is not data.
Just consider all of the other notable crashes that have occurred in months that were not October. The tech
bubble began tanking in March 2000; the Flash Crash was in May 2010, the same month as the Panic of
1901. The market seems to have anticipated the recession of 1920–21 by peaking in November 1919, then
sliding until it hit bottom in August 1921.
My favorite parallel to the 2008-09 market debacle was the 1973–74 stock market crash. Stocks peaked in
January 1973, then fell about 57 percent, and bottomed in December 1974. Nary an October date was key
to anything in that mess.
Mark Twain was a notoriously bad investor. As my colleague Mike Batnick explained in “Big Mistakes:
The Best Investors and Their Worst Investments,” every terrible idea of his era caught his attention and
money. And it wasn’t just a matter of what he did invest in, but what he didn’t. Despite his penchant for
foolish speculation, he decided to pass on Alexander Graham Bell’s new-fangled idea, the telephone. He
was that bad.
His misadventures in investing did teach him a thing or two about risk. In “Pudd’nhead Wilson,” Twain
wrote “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July,
January, September, April, November, May, March, June, December, August and February

(Raj A A) #357

History of Small cap Index


(Mahendra243) #358

I guess still we are not there…Brent is racing to 86$ now…matter of panic will happen when it reaches 90 and INR 75 to 76

(phreak) #359

I think indulging in macros too much doesn’t really help as macros are not a one-way street. For eg. if rupee weakens enough - say 76, it makes our equities attractive again to FIIs. So a lot of these things cut both ways. Crude at 90 - We have seen crude at $110+ in the past so we should be able to tide through it again but not without a lot of pain.

Unlike the past, we do have about $400b in dollar reserves and reserves are built to be used in scenarios like these. Crude not so long ago was near $25 and whatever is propping its price up now is restriction in supplies and not rise in demand or lack of oil in the world. Eventually supplies find their demand as policies and politics play out.

Here’s something from Munger on macroeconomics

“I’ve never made the least effort to predict short-term swings in macroeconomics. When things are awful, I predict that some day they will be better. When things are wonderful, I predict some day they will be awful. But apart from those general feelings, I never try and predict. I think it’s a waste of time.” - Charlie Munger