Horrible September of 2018

It started with IL&FS default .. and it brings back memory from the Satyam scam way back in 2008 .. the fact that these two are actually connected in some way provides little relief

Satyam scam was a Rs 6000 crore scam .. IL&FS has a debt of Rs 91,000 crore and is defaulting on it's payment obligations. Fortunately in case of Satyam entire 6000 crore vanished into thin air and in case of IL&FS it is less of a scam and more of a mismanagement. There are some assets that have been created over time and might help recover some of the debt but as it happens in most cases like these, there are going to be huge drawdowns and write offs. Govt moved into action swiftly after the default (ideally speaking it is 10 years too late .. as it should have put in checks and balances way back in 2008 after Maytas created one of the biggest crisis in Indian market.. until 2008 .. now it is IL&FS)

It is a bit too late. IL&FS crisis caused corporate bond yields to spike, liquidity freeze in the bond market. Hit the likes of DHFL, IndiaBulls Housing and many other NBFC's very hard. DHFL lost 40% plus in a single day. Over the month of September most stocks in the BFSI sector lost 30-50%. No discrimination was made between small and large, good and bad quality. The most resilient stocks like HDFC, Bajaj Finserv and Piramal Ent had their backs broken.

Goes without saying the plight of good quality stocks looked mediocre compared to what happened to stocks with questionable fundamentals, rumors, and manipulation. Infibeam lost 71% in one trading session. yes 71% in one trading session.

 Few other notable victims of regulatory action includes Yes Bank, Bandhan Bank, 8K Miles and many more ..
 

USD/Brent Crude
A market that was already weakened by rising dollar and crude had a lightening strike straight from hell

 

Good news is bad news

Currently even good news is working as bad news in Indian market. US markets and economy are firing on all cylinders. Unfortunately this will embolden FEDS to take up aggressive rate hikes which will further strengthen dollar and bond yields. Unfortunately that is not so good for equity investments and especially for equity investments outside US as you are earning terrific returns in low risk instruments and low risk markets then why invest in foreign high risk countries

Add to this continuous weakness in Emerging Markets and continuous outflows of FII/FPI from India. The draconian measures from Indian regulators, and Finance Ministry and PMO did little to help except add more oil to fire and more salt to the wounds of investors. (Read LTCG, KYC, and Indian origin foreign fund managers saga) .. the back and forth on these issues was even more pathetic. Market is good at absorbing bad news but doesn't do so well with chaos, confusion and loss of trust which creates panic. I had hoped that regulatory authorities and finance ministry would have known this .. but doesn't look like it. 

Anyways the market doesn't spare anyone .. including the govt .. they will have to take their share of hits for creating and unleashing absolute havoc in the market from time to time ..

Off-course the collateral damage here is much higher. Only the toughest and the most sorted will survive this. Market has become a war zone.  Make no mistake, blood will be spilled, lives will be lost and dreams will be crushed.  Everyone will have to go through the iron test ..

 

However note that this is not the first time and not the last time either .. this is how market cycles work. Periodically it takes out all the weak hands mercilessly and unapologetic.. Market was and always will be the place of only select few .. they are not the heroes .. they are survivors .. 

I would like to end this on a positive note .. for people like us who worship markets, there are no losses .. there are only lessons and an opportunity to grow bigger and stronger with every such cycle .. happy investing !

Continued Market Mayhem in October 

Govt goofs again!

When the going gets bad .. the bad gets going! Govt goofed again. Considering the impact of rising crude and upcoming elections both state and center, our dear govt decided to be extra generous to the public and asked the OMC's to subsidize the fuel retailing by Re 1 per liter. This was enough to send all the OMC's crashing down. 40-50% lost in couple of days. 1.3 Lakh Crores wiped out, further weakening one of the only steady pillars in the market. The scene was almost like govt is triggering a systemic demolition of the markets. Here are some tables and reactions

Regulator goofs again!

I am not an expert on macro economy but sometimes common sense works better than all the institutional expertise .. when INR vs USD was already gasping for breath what could have been the logic to surprise the market .. liquidity concerns? RBI surprises the market using status quo instead of hiking rates that could have helped somewhat to arrest the fall in INR. However market did not like it and it made it very clear. Check out the last hour reaction post RBI announcement. This is however a 50:50 chance decision .. the reaction on the other side could have been bigger on liquidity concerns .. we will never know. Current mood in the market is "Good news is bad news" and "Bad news is panic button being pressed hard" 

Hopefully we are mostly done now .. only time will tell .. but the next important events are the upcoming state elections and couldd be a difficult one for ruling BJP given the overall negative and pessimistic sentiments. 

Silver Linings

• One silver lining in all this mayhem was that promoters have started acquiring their shares. Pilani Investments did a basket buy on all the Birla group companies Century, Hindalco, Aditya Birla Cap. Significant buying was seen in across the board in mid caps also.  
• Another one being India decided to continue to trade oil with Iran despite possible US sanctions. If it manages to avoid US sanctions it is a net positive. Also US was forced to soften it's sanctions on Iran since many countries had indicated that they are not going to follow it. This would also lead to downward pressure even on OPEC oil price that has already fallen from $86 per barrel to a little over $83 per barrel
• A developing positive is the huge defense, nuclear energy and SME deals signed with Russia and bilateral deals between India <-> Russia and India <-> Iran to deal taking place in local currencies instead of using dollar denominated trades. Russia also expressed interest in investing in the infrastructure and energy sector in India
• Venezuela launching it's asset backed crypto currency instead of $ is another indication that $ domination has peaked off and the havoc it is creating in the world currency market is going to pass. Venezuela being a oil exporting country, if it stabilizes will bring additional oil supply into the market and further discourage OPEC cartelization
• SBI decided to purchase the asset providing some support to liquidity strapped NBFC's which will help tide over the temporary liquidity squeeze situation created by IL&FS fiasco

Relief Rally in Oct 2nd Week

There was a huge relief rally in Oct 2nd week. Few events that helped the same. US markets cracked especially NASDAQ and FAANG stocks, this was mostly triggered by fear of FED rate hike in Dec. IMF came up with a lower growth projection in world GDP over trade war concerns, this also triggered a fall in $ and oil. At the same time India got the crown of being the best Emerging market among Emerging Markets. I think there was some rotation happening from developed markets to emerging markets. Oil correcting from $86 per barrel to $80 per barrel was a huge positive. Regarding the liquidity problem triggered by IL&FS crisis, SBI and other large banks announced that they will buy good quality loan assets from NBFC's to give them some liquidity. This was a great boost to hugely battered NBFC and BFSI stocks. Results season had also started on a decent note. On the other hand few factors to worry included FED rate hike in December, Possible US sanctions over India's S400 deal with Russia and Oil deal with Iran, upcoming state elections in MP, Rajasthan with expectations of huge losses for BJP, general implications of continuing trade wars, Italy going bust the Greece way and a possible bigger than expected bust in US stock markets instead of controlled correction