- Markets Today
- Market Vista
- Equity Probe
- Equityright Blog
- Equity Edge
“Know what you own, and why you own it”- Peter Lynch
2018 has proven Peter Lynch correct. At the end of the article, you will realise that if your investments had fundamental backing you would have emerged victorious today. The year proved to be a tour de force for some investors while some had disappointed speculations. Sensex and Nifty 50 rallied to their all-time high thrice in Q2 FY18-19. Nifty breached its 11,517 points benchmark and Sensex peaked at 38,210.94 points. With the benchmark indices reaching their respective high’s, the stock’s across the Dalal Street performed exemplary. Mere speculators who mistook this incident for the stocks to be reaching their potential investment in an over-valued market. In the coming months when the dust settled the over-priced stocks took a huge blow and so did the investors. There were some who smartly sold their stocks while they could and there were several others who were overcome with greed. The stocks experienced a robust growth up until September.
The hunky dory quarter came to an end with the IL&FS (Infrastructural Leasing and Financing Services) default. The default focused on the ignored quintessential concept of Asset Liability Mismatch (ALM). The first default by IL&FS was in the month of June of inter-corporate deposits and commercial paper (borrowings) worth Rs. 450 crore. Which was overlooked as all eyes were set on the benchmark indices which were about to break their records. The default which was recorded in the month of September and October was however of substantial figure’s and could not be ignored. IL&FS had a standalone debt worth Rs. 16,468 crore. It had defaulted Rs. 3,761 crore on 29 Sept’18. On aggregate, the NBFC owed debt worth Rs. 91,000 crore. The default was a major blow to the PSU banks since Rs. 57,000 crore was lent to IL&FS by state-owned banks.
The market experienced a 360-degree turn after the news unveiled. Banks took a major hit and the stocks reached their rock bottom.Indiabulls Housing Finance and DHFL (Dewan Housing Finance Corporation Limited) were the two banks which were impacted the most. Indiabulls Housing Finance touched its 52w low of Rs. 640.15 whereas DHFL has recorded a decline since 19 Sept’18 and hasn’t been able to bounce back. Most investors in the market again mistook the decline of the DHFL stock to be a cascading effect of the IL&FS default. However, the decline was recorded when DSP Mutual Fund Merrill Lynch sold the bonds of DHFL at a higher yield of 11%. This triggered speculation that DHFL was facing a liquidity crisis.