September 24, 2018

Market Mayhem: Fear has no bottom

Shankkar Aiyar, Visiting Senior Fellow at IDFC Institute, writes in the New Indian Express on the mayhem in Indian financial markets. Excerpts:

 

"Friday, September 21. Time: 12.21 pm. The BSE Sensex was coasting at 37,370 points. And all of a sudden the market was quaking in fear. At 1.09 pm, the BSE Sensex had plunged 1,377 points to 35,993—travelling back in time to a milestone the index crossed on July 10. The tectonic shifting of values led to erosion of crores of rupees of public wealth. Ostensibly institutional moolah muscle was deployed to quell anxieties and restore order, propping up the index again to close at 36,841 points.

 

Alan Greenspan said amidst the Asian Contagion in October 1997 that if not the contagion something else would have been the cause for a revaluation. There were many triggers at play on Friday. There were the known knowns, the fault lines in the fragile financial sector—17 government-owned  banks are in losses, of which 11 cannot lend as they are under prompt corrective action and laden with over `11 lakh crore of bad loans. Then there are the known unknowns—for instance, growing cost of money and suspense about the fate of stressed assets of `3.8 lakh crore in the power sector.

 

Fear has no bottom. The tremors of anxiety around the financial sector had already wiped out nearly `3 lakh crore in three sessions earlier in the week. The bifocal concern for the last few weeks has been focused on the interplay of currency and crude oil prices. The rupee on a secular slide reversed the gains of RBI intervention on Wednesday and Brent Crude threatened to hit the $80 per barrel level."

 

Read the full article here.

Topic : State Capacity / In : OP-EDS
Tags : Markets , BSE , Sensex , IL&FS
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