Lot of people are calling for a closing of stock markets too.
I think its a terrible idea in an emerging market like India.
These are my thoughts why ... 🧵
I think its a terrible idea in an emerging market like India.
These are my thoughts why ... 🧵
1. India has a large % of Foreigners (FPI or Foreign Portfolio Investors) invested in the market.
India depends on foreigners buying its asset to fund for its net imports.
If they cant sell, it creates a red flag and will be dropped from Stock Benchmarks like MSCI
India depends on foreigners buying its asset to fund for its net imports.
If they cant sell, it creates a red flag and will be dropped from Stock Benchmarks like MSCI
2. If there is no good news between closing of the market and reopening - the market just gaps down lower. This actually increases the Volatility and 'Value At Risk' - this VaR shock makes people believe that its riskier and hence invest less in India
3. Countries which have done this earlier - Pakistan in 2008 - when it opened few months later opened 50% lower.
Philippines shut for a day - it opened 24% lower with just 2 days later.
Finance and Markets is a confidence story. Lose it, tough to gain back
Philippines shut for a day - it opened 24% lower with just 2 days later.
Finance and Markets is a confidence story. Lose it, tough to gain back
4. Markets are all electronic anyways - most traders and brokers can work from home.
Back ups and liquidity buffers can come in.
Back ups and liquidity buffers can come in.
5. Why Care about foreign investors?
Well if they cant sell Nifty - they will sell Nifty Futures on SGX and even short sell the currency (INR) offshore using NDF (non deliverable forwards)
Very few own stocks in India, but all will be hit by higher inflation with weaker ccy
Well if they cant sell Nifty - they will sell Nifty Futures on SGX and even short sell the currency (INR) offshore using NDF (non deliverable forwards)
Very few own stocks in India, but all will be hit by higher inflation with weaker ccy
6. China kept its markets open and functioning through this crisis. Their scheduled Chinese New Year holiday was extended by 1 day (which was Friday) so 3 days effectively
7. If india's financial markets keep functioning effeciently through the cycle - impact will be lower and actually the positive news will make next boom bigger.
8. Think of someone needing to sell stocks for immediate consumption - an orderly fall of a few % a day will bounce back better - than a gap down of 24% or 50% in 2 weeks time.
That will actually create a ripple effect on all brokers who lend money to buy stocks and futures
That will actually create a ripple effect on all brokers who lend money to buy stocks and futures
9. I am thinking long term - this short term pain is worth keeping confidence on for longer term gain.
Let markets function - let locals buy the dip, the market bounce back post a Vaccine could be great
Let markets function - let locals buy the dip, the market bounce back post a Vaccine could be great
10. Reduced trading hours, tighter circuit breakers, more time out once a circuit breaker is hit could be done.
Most important is confidence.
That’s what’s needed.
Most important is confidence.
That’s what’s needed.
