Markets

We are not out of the woods yet, but adequate liquidity will help market: Lakshmi Iyer, Kotak Mutual Fund

Hopefully, freaky Friday wont turn into manic Monday or a terrible Tuesday because RBI, Sebi and even the finance ministry have been saying that they will do all that is required to ensure adequate liquidity in the system, Lakshmi Iyer, Chief Investment Officer ( Debt) & Head Products, Kotak Mutual Fund, tells ET Now.

Edited excerpts:
Would you say that the panic from IL&FS has bottomed out with Fridays fall or is there still a lot of fear in the bond markets?

I can probably hazard a guess that over the weekend people would have bitten and chewed into this issue and realised that there may not be any need for a panic attack yet again that would have morphed into another manic Monday. We need to let this simmer down in the next couple of hours to see how the investors behave.

The board meeting of IL&FS is due later this week,. What happens in the run-up to the board meeting, whether that makes the markets and bond fund managers nervous and force investors to press the panic button is yet to be seen. How do you think markets are likely to approach this board meeting?

That is a fair point. Just to explain this to those who have been holding IL&FS bonds as part of their portfolio, you would have noticed over the course of the past few weeks that these had already taken a mark to market impact ranging from 25% to 50%. That was already reflected in the NAVs of most of these fund houses. Incrementally, there is nothing new that can materialise unless there is a decision taken with respect to either the capital infusion or the bridge loan or the bridge financing that they have been speaking about.

So, from a bond investor standpoint, there is no new information with respect to IL&FS. There will definitely be palpitations ahead or run-up to the board meeting. In fact, we read this morning that the Reserve Bank of India is also meeting the shareholders etc just a day prior to the board meeting.

A lot of conjectures are going on at this point in time. It will be wrong to say that everything is out of the woods and investors should not be worried. The concerns are visible, there is no doubt about it but till the time we have adequate information, we cannot draw any meaningful conclusions.

It was a freaky Friday and markets may recover and forget it very soon, but could this freaky Friday snowball into a manic Monday or a terrible Tuesday? What do you think should not happen that could freak investors in the bond markets?

The biggest concern of investors is whether the mutual fund industry is geared up enough to meet liquidity requirements because the secondary markets for corporate bonds is fairly illiquid. That is the biggest single concern. I hope that this does not morph into a manic Monday or a terrible Tuesday because there have been a lot of sound bites coming in from the Reserve Bank of India, from the SEBI and very recently from the Ministry of Finance that they will do all that is required to ensure that there is adequate liquidity in the system. If there is liquidity, I do not think any of these days will materialise.

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