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.