"One of the fallouts of rising hubris is disconnect with consequence. There are unintended consequences and then there are unattended causes. Last week, the stock markets recorded new highs boosted by inflows, but declines in the broader market outweighed advances, reflecting underlying nervousness.
The tremors in the debt market continue unabated—there is the bankrupt but not bankrupt case of shadow banker IL&FS, which owes investors and banks over Rs 90,000 crore, there is the Damocles sword of value realisation on holdings where promoters have mortgaged shares, and the worries of credit availability haunting NBFCs and debt issuing corporates hurt by lower consumption. Fear is now creeping in. India’s largest mutual funds are writing to unitholders to either roll over, take a pause, or even a hit on their investments in the absence of clarity on repayment—thanks to the extend and pretend tactic adopted.
Earlier this week, India’s second largest airline, Jet Airways, was grounded. The state of Jet Airways was known for eight quarters— the distress calls have been loud since October 2018. The issues around relief and rescue measures were being debated long before the first aircraft was grounded by lessors. Elementary business text reveals that businesses are best rescued when they are ongoing. In April 2019, it is a classic Humpty Dumpty rhyme, “all the lenders and banks and all the mighty mandarins could not get the airline in the air”. The result: fliers are paying more, families holidaying are stranded, refunds are hard to come by and, of course, investors and savers are left holding the can..."
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