Try­ing times!

Money Times - - -

The Nifty or the Sensex may have lost 10-15% in this down­turn, but the broader mar­ket has lost around 50-80% from its re­cent high. In­vestors and traders are both find­ing it dif­fi­cult to bal­ance be­tween min­i­miz­ing losses yet not miss­ing a worth­while op­por­tu­nity to in­vest at lower lev­els. But this bal­anc­ing act is eas­ier said than done and needs deep think­ing and fore­sight to ex­e­cute.

While mar­ket pun­dits may scare us, it is worth­while to list all the neg­a­tives and leave room for some un­ex­pected de­vel­op­ments. Fif­teen days back, it was the IL&FS de­fault which trig­gered the down­fall. The ini­tial fall took a toll of non­bank­ing fi­nance com­pa­nies (NBFCs) in gen­eral and hous­ing fi­nance com­pa­nies (HFCs) in par­tic­u­lar. Dewan Hous­ing Fi­nance Cor­po­ra­tion (DHFL) and In­di­a­b­ulls Hous­ing Fi­nance (IBHF) lost over 50% in a sin­gle ses­sion and have weak­ened fur­ther since then.

The sell-off wit­nessed last week was sparked by wor­ries over the liq­uid­ity po­si­tion of home loan com­pa­nies af­ter New Delhi based builder Su­pertech Ltd de­faulted. It is feared that one loan de­fault of Su­pertech may lead to other de­faults. This is ev­i­dent from In­di­a­b­ulls Hous­ing Fi­nance los­ing ~Rs.3000 crore in its mar­ket cap against its ex­po­sure of ~Rs.600 crore to Su­pertech. This arith­metic of fear psy­chosis pulled down DHFL, Can Fin Homes, Repco Home Fi­nance, etc. The blood­bath en­gulfed NBFCs like Mahin­dra & Mahin­dra Fi­nan­cial Ser­vices (-8%), Ba­jaj Fi­nance (-7%), Shri­ram Trans­port Fi­nance Com­pany (-6%), Ba­jaj Fin­serv (-5%) apart from HFCs like LIC Hous­ing Fi­nance (-3%), Power Fi­nance Cor­po­ra­tion (-3%), Ru­ral Elec­tri­fi­ca­tion Cor­po­ra­tion (-3%), Sun­daram Fi­nance (-2%) and Hous­ing De­vel­op­ment Fi­nance (-1.5%). The sell-off was ev­i­dent in real es­tate, bank­ing, met­als and auto coun­ters as well. Yes Bank, State Bank of In­dia, Tata Steel, Tata Mo­tors, Maruti Suzuki In­dia and Adani Ports all lost around 3% in a sin­gle ses­sion. In­vestors rightly fear that many HFCs will face the twin trou­bles of de­fault by real es­tate com­pa­nies, which may find it dif­fi­cult to re­pay the loans due to the slow sale and roll over of their own obli­ga­tions to mu­tual funds that come up for re­pay­ment. NBFCs and banks that have ex­po­sure to real es­tate com­pa­nies will face the heat. Mixed growth in dif­fer­ent seg­ments led Reliance In­dus­tries Ltd (RIL) to re­port 17% higher con­sol­i­dated PAT for Q2 at Rs.9516 crore. On a stand­alone ba­sis, PAT was up 7% at Rs.8859 crore on 37% higher rev­enues of Rs.103086 crore. The re­cent ex­pan­sion in its petro-chem busi­ness boosted sales and ex­ports while its tele­com and re­tail seg­ments grew briskly and more than made up for the con­trac­tion in the re­fin­ing mar­gin, which fell be­low the street ex­pec­ta­tion. The man­age­ment was can­did in its ad­mis­sion of rise in rev­enue pri­mar­ily due to higher price re­al­iza­tion of petro­chem­i­cals and re­fined prod­ucts, led by 44.5% rise in Brent crude prices.

Jio re­ported its fourth prof­itable quar­ter with 11% QoQ rise at Rs.681 crore. With RIL’s ma­jor­ity stake ac­qui­si­tions in Den Net­works (at Rs.2290 crore) and Hath­way Ca­ble Dat­a­com (at Rs.2490 crore), Reliance Jio In­fotech will give the im­pe­tus to Mukesh Am­bani’s am­bi­tious Jio Giga fiber that aims to con­nect 5,00,00,000 homes across 1,100 cities. With this strate­gic pick up, Reliance Jio will get al­most 27,000 launch con­trol of­fi­cers (LCOs) of the two Multi Sys­tem Op­er­a­tors (MSos) to work with.

The Tata’s are be­lieved to be in talks with Jet Air­ways as they plan to pick up 24% stake in their bid to strengthen their foothold in air tran­spor­ta­tion.

In such try­ing times, which are mod­er­ate com­pared to the sub­prime cri­sis of 2008, one can find so­lace in the words of Howard Marks in his book ‘Mas­ter­ing the Mar­ket Cy­cle’. He says “When things have gone well for a long time, I get more cau­tious. One of the im­por­tant themes which I try to al­ways repeat and re­mind peo­ple is that peo­ple get ex­cited when things go well and cau­tious when they go poorly.” Quot­ing John Ken­neth Gal­braith, he said “We have two kinds of fore­cast­ers - the ones who do not know and the ones who do not know that do not know”. Well, Marks ob­vi­ously be­longs to the first cat­e­gory.

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