Home Blogs Crisis in IL&FS Spooks the Markets
The smallcase Newsletter

Crisis in IL&FS Spooks the Markets

Crisis in IL&FS Spooks the Markets
Reading Time: 2 minutes

Markets down by over 3%

The ongoing crisis at IL&FS and a sell off in NBFC counters led to super-high volatility in the markets on Friday.

Benchmark indices closed deep in the red past week. Sensex closed down 3.28% at 36,841.6 and Nifty closed down 3.32% 11,143.1.

What happened in the markets on Friday?

IL&FS (Infrastructure Leasing and Financial Services) is one of the biggest infrastructure lending companies in the country. It is backed by big PSUs like LIC and SBI and credited for projects like building the longest tunnel in the country. The company has a debt of more than Rs 90,000 crore. Because of problems in cash management, the company started defaulting on loan repayments in June. Since then, IL&FS has come out with a plan to sell assets and reduce its debt burden, but has also defaulted on many scheduled repayments.

Liquidity conditions are also tight in the markets at present, because of reasons like advance tax payment. This means that firms in general have less cash in hand. This, coupled with the IL&FS default, led to market participants thinking that other NBFCs can also get affected. Under such circumstances, DSP Mutual Fund – one of India’s biggest mutual fund companies – sold some debt papers of DHFL (Dewan Housing Finance) on Friday. Market participants thought that DHFL also has some problems and this is why DSP is trying to reduce exposure to the same. This caused a sudden panic in the market and all NBFC stocks, specially housing finance companies suffered.

What has happened since then?

  1. Clarification by DSP Mutual Fund – The fund house has clearly said that it doesn’t hold a negative view about DHFL and that they reduced exposure only to improve liquidity (get cash) to meet certain immediate obligations

  2. RBI & SEBI issue joint statement – A central bank statement released on Sunday said that RBI and SEBI are closely monitoring the situation and are ready to step in any time, if required

What should you do?

The markets may remain volatile for some more time. But nothing changes for long-term investors. Here are two smallcases that are built to protect you in volatile times:

All Weather Investing 

This smallcase invests your money in gold, fixed income and equities through ETFs. Diversification across assets reduces risk and protects your investment in volatile times. You can check how it has performed over the last 11 years under different market conditions. The All Weather Investing smallcase is also free to buy and sell

all weather investing smallcase

Safe Haven 

Risks in the stock markets are measured through volatility. Higher the volatility, more is the fluctuation in your investment value. The investment value will fall and rise faster in stocks & portfolios with high volatility. On the other hand, a low volatility portfolio will see less fluctuations. The Safe Haven smallcase consists of low volatility, buy-rated stocks

safe haven smallcase

You may want to read

image Indian Markets Celebrate New Milestones 
Reading Time: 3 minutes
India's Q2 GDP performance stole the show, clocking in at an impressive 7.6%, a pleasant surprise that outpaced the general consensus. Notably, India maintained its lead over China, which posted a GDP growth of 4.9% in the July-September quarter.
image Beyond the Hype: Are IPOs a Hit or Miss?
Reading Time: 3 minutes
Last week on the D-street was like an IPO carnival! The initial public offering (IPO) market seems to be in an unprecedented bull wave, with the debut of five IPOs aiming to raise ₹7,400 crore from investors. This is no small feat — five IPOs in a week is a rare sight. So, diving into this week, let's explore India's consumption story. Amidst all the talk about India becoming a major economy, increased consumption stands out as a crucial pillar for this growth.
image The Power of The Great Indian Consumer 
Reading Time: 4 minutes
Even in the tough times of 2020, the festive season was a saving grace, injecting a much-needed boost into the economy. It's incredible how the Indian consumer wields such influence. So, diving into this week, let's explore India's consumption story. Amidst all the talk about India becoming a major economy, increased consumption stands out as a crucial pillar for this growth.

Your email address will not be published. Required fields are marked *

Crisis in IL&FS Spooks the Markets
Share via Whatsapp