What explains this kind of weakness? Would you say that perhaps redemption at some fund level is causing this kind of weakness because if one analyses Fridays data, both FIIs as well as DIIs were net buyers?
Basically, there is no redemption pressure at any counters as far we can see but what is happening is that fund managers who were consistent buyers are staying off. What has happened is that over the last six months, only a few stocks have taken the Sensex to all-time highs and those valuations because of a certainty about their earnings stream and a confidence about rupee weakening would help IT and pharma. A consumption story would help the retail finance and the consumer durable stocks in the flight to quality. These stocks, because of the visibility in earnings, have seen the valuations go up very high.
Naturally, with the panic which has set in with the whole fixed income space over the last two days, these stocks has seen a scare. There is selling by very few people but the fact is that there are no buyers and that is what I would attribute the fall to. I think fund managers were waiting. This is like a falling knife and whatever you catch is likely to cause your fingers to bleed.
So wait for a couple of days to see where this dust settles and then step in for fresh buying. I would categorise this as an absence of buying, caution from domestic fund managers who are sitting on a lot of liquidity because SIP flows have been continuing to be strong. There are about Rs 7,500 crore of SIP every month that come in and so there is cash in the system.
In fact, at Sundaram we have raised Rs 1,000 crore in our services fund that just got allotted yesterday. We are sitting on Rs 1000 crore of cash but we are not in a hurry to deploy right now because we will just wait for the time being and see where this whole volatility cycle ends and then we will step in.
If the so-called perceived selloff is largely because of debt market issues, then why have call rates not shot up? Today when I looked at the call market rates one hour ago and on Friday when I looked at the call market rates, the rates are not at some 15, 18, 20%. Even though this is a quarter end, call market rates are still in single digit?
Yes, this is not a liquidity driven debt scare. This is a default and risk rating driven debt scare. If this was liquidity driven, what you say would be true, call market will spike up. Right now, the system has liquidity. The scare has been created because one particular lender defaulted and fund managers in the debt side were forced to sell other good debt stocks in order to meet the redemption pressure.
What I understand is that a lot of institutions have invested in debt products. They are keen to redeem. So the redemption is on the debt side and hence other stocks are being sold and that is affecting the equity side. So, this is not a liquidity driven debt problem. Will debt financing companies find the stock to raise fresh money while their rates and borrowing costs go up and what would be the impact on their future earnings growth?