Emerging Giants Newsletter – October, 2018

The benchmark index Nifty declined by 6.43% in September 2018. However, pain in broader markets was significantly more pronounced with the BSE MidCap Index and the BSE SmallCap Index declining by 14% and 16% respectively. While liquidity had been tightening for the past several months, specific issues starting with the ILFS default and rating downgrade exacerbated the liquidity crunch in September leading to widespread panic in financial markets. From a stock market point of view, while the decline started with NBFCs, it soon spread to most other pockets. There have been developments over the past week or so aimed at stabilizing the liquidity situation and bringing normalcy to financial markets (some of these being the RBI’s recent notification on Liquidity Coverage Ratio which should release liquidity to the tune of Rs 2-Rs2.5 trillion, the government’s positive borrowing surprise which implies lower 2HFY19 borrowings of around Rs 200bn, OMO purchases of over 360 bn over the course of October, etc.). Equity markets however don’t seem to be stabilizing as yet.