Let me bring you some good news this Friday

Published: Fri, 10/18/19

Let me bring you some good news this Friday
The financial crisis is behind us!

Really you might ask? This is in response to articles that are now headlining the similarities between what India is facing today versus 2008 in the US. Let me not mince words that I was comparing our crisis with that which the US faced almost 10 years ago. I was doing that 12 to 18 months earlier and in my economic winter report dated December 2018 because I could see the coming collapse in financial stocks and many other highly indebted companies because of the high levels of corporate debt that had built up over this time horizon. What I could not imagine though was that it would not impact Nifty to such a degree.
While those debts have not been paid back completely the impact of the financial sector has been acute and its impact on economic growth is now visible to all. So these headlines are a statement of fact which are now past news. The statements are not forward-looking and like most other news items reflect only what has already happened.
The posts below that I'm sharing with you are an attempt to reflect what has gone by it is extremely unusual and not something that I would have expected that the sell-off in some of these companies where the losses are more than 70 to 90%, to name a few yes Bank India Bulls, Edelweiss, Jayprakash, Crompton Greaves, and the list goes on, would occur without the Nifty cracking more than 20%. What has happened in the interim is that the government has stepped in to provide liquidity in finance to the public sector banks, at the same time cases like IL&FS have been handed over to Kotak Mahindra Bank, and Yes Bank did raise some funding through a QIP at around ₹ 85 if I'm not wrong. The only question to be asked then is that after such a big crash that is already reflected in market prices what is the nifty doing at 11,000? The impact of such a big fall should have been very similar to that of 2008 on US stocks. The actions of the RBI and government to provide liquidity and stability to the financial sector from time to time have averted the possible contagion effects that even I was anticipating.
In short what I'm trying to say is that the 2008 crisis has come to India and been dealt with in the same way as was the great recession, with bailouts and liquidity injections. Banks like Citibank managed to get investor funding many others were either merged with stronger names as in the case of AIG and only Lehman was allowed to fall. I'm sure some of you still continue to feel the risk of contagion but the sheer quantity of liquidity injection and money that is being put in the system is currently overwhelming.
Have we then been saved from a financial crisis? That is the bigger question. Secondly if some of these fallen angels are not due for financial closure they might have just been saved at the brink.
Starting 2009 US managed to push itself back from the brink into another liquidity driven bubble that has held up financial markets for the last decade. Is India at the same crossroads is now the million-dollar question?

Rohit Srivastava

The Truth About The Markets

Bank of America

The charts of financial sector stocks in the US provide a lens into what you can expect after a crisis in the financial sector. It may be fair to say that India has gone through a financial crisis specifically in the financial services sector where some stocks have lost 70 to 90% of their games over the last couple of years. How the fate of Bank of America (chart below) turned after it received funding, or more specifically the case of Citicorp that found an investor after hitting one dollar, is a case in point. The question I ask for any stock that has been hammered to the bottom is that one of survival. If it appears that the company has value and will get the support from investors, the worst may have been priced in. Bank of America hit a low of near $ 2.5 and is now close to $ 30. Similarly Citicorp touched the dollar and is now close to 7 dollars. Neither is anywhere close to their all-time highs but have recovered from crisis territory. The dilution of equity and previous losses may have hampered their valuations and the general perception from an investment standpoint, but that did not wipe them out from the face of earth. Similarly some of the financial stocks in India while hammered, with the requisite funding liquidity provided by the central bank may eventually recover from the storm.

boa 181019

Jaiprakash Industries

I have covered a few of the beaten down stocks recently even though I consider them high risk. The reason was that a clear ABC decline could be seen. The real judgement in any of these cases apart from the chart is that the company should not go bankrupt or hit financial closure. Once you can take that view it's really a question of turning around the business or a change in the business environment. Chart -wise we have formed a small triangle on the daily charts that could be wave five of see. The chart below however as of the monthly chart where I'm showing C=A near 1.8 that I wrote about a couple of years ago has been achieved, or almost as we touched 1.95 sometime back. This company has a unique history of having risen to star status in 1992, then got included in the A group. Eventually after its fall was removed from the A group of shares as defined by the BSE. Again on its way back from the ashes in 1998 it eventually managed to become big enough to be included in the A group again. Now it is surprisingly back in the dumps from a high of 340 made in January 2008. Can we rise from the ashes or third time only time will tell.

jaiprakash 181019

Yes Bank

There is only one thing to be certain about with a case like Yes Bank. Ask -Is it going to shut down tomorrow, or too big to fail/bail. The chart shows that wave v of C just extended from 53 to 30 that is all, wave C has to end somewhere, maybe it did today.

yes 031019

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Rohit Srivastava
www.indiacharts.com
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