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RBI Ruined My Portfolio (Not)🔻

If you’re the genius that has only Paytm, IIFL Finance and JM Financial in their portfolio, this title is exactly what you’d be saying as you watch your portfolio bleed into nothingness.

What started with the Paytm fiasco, RBI has been badgering Non-Banking Financial Institutions (NBFCs) this year (after giving an ample number of warnings to them beforehand), causing their stocks to go into free fall after the news got out. Just take a look at the three noteworthy ones!

rbi action stocks fall

With various brokerages lowering ratings on the stock on stock market experts giving their opinions on this matter, we just had to give our two “common cents” as well!

Why Is This Happening?

In what seems to be a “prevention is better than cure” situation, the RBI has taken some early, yet necessary steps to ensure the integrity of the banking system of the nation doesn’t go into shock by looking into certain NBFCs for corporate governance and non-compliance issues:

  • All three of the above companies have been accused of either recklessly lending, or not adhering to regulations - both of which, if left unchecked, could’ve resulted in a wide-scale default on loans, massive losses in the stock market, and maybe even failure of these NBFCs

  • What is more concerning is how interconnected the main banking system is to the NBFCs as more than 40% of NBFC funding comes from banks (growing by 1-2% every year), with a lot of these funds going towards unsecured personal loans (average 20% of loan books of NBFCs)

  • If these loans default, the domino effect could spill over into the entire banking system, causing catastrophic consequences across the board, especially if this interconnectedness increases. Nevertheless, the fault lies in the NBFCs and not the overarching banking sector as a whole.

What’s Next?

While this situation is bad enough, we believe this is a warning signal to the entire industry that is being sent out by the RBI, urging them to buck up before they f**k up. Furthermore, RBI could just be starting their crackdown, ticking off names off a long list of companies.

Hence, for the time being, it might be safe to stay away from NBFC stocks until this situation cools down.

In fact, as a flight to safety, investors have been pouring money into banking stocks, with Bank Nifty up 5% since the Paytm announcement, possibly because the main banking system functions on a more stringent basis, making those companies less prone to RBI action.

On the flip side, this RBI badgering fest might be for the best! It urges the companies under investigation and the general industry to clean up their act, improving the system’s health and the shareholder’s chances of making money in the long term.

Bottom Line - RBI is doing its job. If these NBFCs do theirs, the red in your portfolios might turn to green sooner than you think. Don’t think you’re smart enough to time this fall and buy at the “bottom” because literally no one knows what that is. Stay safe, and follow Rupeeting to know more!

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