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Markets Will Remain Nervous

The Indian stock markets continue to be in a free fall. The rampaging bulls have suddenly disappeared from the scene and the marauding bears have taken charge. No amount of assurance from the RBI, SEBI and the Finance Minister, that all is well and that there is no reason to panic have worked and the markets remain weak. Arun Jaitley’s categorical statement that the government will take all measures to ensure that adequate liquidity is maintained/provided to NBFCs and MFs, has failed to reassure the market and so have SEBI’s warnings that it is investigating, to prevent any share price manipulation, to prevent a further collapse in the market. The downward spiral in stock prices has been led by stocks of banks and NBFCs, which include Yes Bank share price erosion of 40%, India Bulls of 35% and DHFL by 60%, as also that in the case of LIC Housing Finance etc. The dark clouds of the continuing payment defaults by ILFS continue to hover around a nervous market, only adding to its gloom. ILFS has defaulted in repaying its loans of about Rs.1000 crores to SIDBI and has also defaulted in repayment to mutual funds like LIC MF, Principal MF etc. Its shareholders, which include LIC, SBI, Orix Japan, continue to watch from the sidelines but are yet to chip in the funds to stop the continuing payment default by ILFS and bring stability into the markets.

The present steep fall in share market prices has been led by the payment crisis at ILFS. Even though its immediate payment liabilities are about Rs.12000 crores (and not its entire borrowings which are now reported to be about Rs. 1 lakh crore), which can be easily pumped in, the market remains jittery, perhaps suspecting such a crisis in all other banks and NBFCs. The fact that financial divergence, under-reporting of NPAs and manipulation of financial statements was one of the key reasons why the RBI has truncated the tenure of Rana Kapoor as the CEO of Yes Bank, has only added to the continuing lack of investor confidence in the system.

It is this missing confidence that is creating a liquidity and capital markets crisis in India. We have over Rs.18.50 lacs crores of cash in circulation in the system, consumer spending has been on an uptick, festival spending has had a robust start, consumer loans have gone up, the GDP growth of the economy has been strong, the rupee crisis has not upset the applecart of our economy and we yet have a liquidity crisis in the markets. The market nervousness is also due to a slew of other lingering factors which include the oil price rise, US-China tariff wars, the impending slowdown in a global trade, sanctions against Iran and a strong dollar, apart from India’s unsolved NPA crisis, all of which are yet to pan out or hit a peak. Added to it all is the start of political uncertainty in India. With various state elections and finally central elections on the cards, this market nervousness is not a short-term phenomenon and will linger and so will linger the rule of the bears in the Indian stock markets, in the coming months.

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