THE HINDU Editorial Vocabulary - September 24, 2018 - Topic 2
On edge: on the
volatility in Indian markets
Volatility is back in the Indian markets. Stock
indices witnessed an extraordinary swing on Friday, with the Sensex moving
1,500 points between its high and low during the day and the Nifty almost by
370 points. The Sensex and the Nifty were down 279 and 91 points, respectively,
at the end of trading on Friday after a significant recovery, but the day-end
figures failed to capture the panic that struck investors during the day.
Non-banking financial companies (NBFCs) were the major force behind Friday’s
extreme volatility. Shares of Dewan Housing Finance Corporation Ltd (DHFL) had
lost 42% of their value by the end of trading, after having fallen 60% during
the day.
Other financials such as Indiabulls Housing Finance, LIC Housing
Finance, and Repco Home Finance also witnessed similar steep falls. The market
panic was attributed to DSP Mutual Fund’s sale of bonds worth ₹300 crore issued by DHFL at yields higher than
normal, leading to fears that it could be a precursor to higher borrowing costs
that adversely affect the profitability of NBFCs. The Infrastructure Leasing
& Financial Services Ltd.’s continuing default on its various liabilities
also shook investors. The 29% fall in shares of Yes Bank, after the RBI refused
to extend the term of its chief executive officer beyond January, further added
to the panic. But Friday’s fall was not simply limited to financials, as scrips
across the board witnessed panic-selling.
The market’s impressive recovery from the day’s
lows, which was fuelled by strong institutional buying, has offered some reason
for optimism to investors, who believe the fall was simply a temporary
correction in a bull market. Such optimism may be warranted, at least
partially, after looking at how both the Sensex and the Nifty have recovered
since their previous deep sell-off in February. That said, market breadth
continues to remain a major concern since the last sell-off. Midcap and
smallcap indices have failed to replicate the recovery that has been witnessed
in the Sensex and the Nifty since February. The panic sell-off also raises the
alarm about stretched valuations and other risks faced by the Indian markets.
The depreciating rupee and the likely increase in the fiscal deficit in the
run-up to the general election are the most immediate concerns. The need for
corporate earnings to catch up with current valuations is another. The systemic
risks posed by rising interest rates to corporate debt and various lenders also
cannot be ignored. Investors, as well as financial market regulators, will do
well to understand and act against these risks.
Vocabulary
Extraordinary: very
unusual or remarkable.
Example: The
extraordinary plumage of the male
Synonyms: remarkable, exceptional, amazing, astonishing, astounding
Significant: sufficiently
great or important to be worthy of attention
Example: A
significant increase in sales
Synonyms: notable, noteworthy, worthy
of attention, remarkable, important
Volatility: liability
to change rapidly and unpredictably, especially for the worse.
Example: The
succession of new rulers contributed to the volatility of the situation
Witness: a
person who sees an event, typically a crime or accident, take place.
Example: Police
are appealing for witnesses to the accident
Synonyms: observer, onlooker, eyewitness, spectator, viewer, watcher
Precursor: a
person or thing that comes before another of the same kind; a forerunner.
Example: A
three-stringed precursor of the violin
Synonyms: forerunner, predecessor, forefather, father, antecedent, ancestor
Optimism: hopefulness
and confidence about the future or the successful outcome of something.
Example: The
talks had been amicable, and there were grounds for optimism
Synonyms: hopefulness, hope, confidence, buoyancy, cheer, cheerfulness
Concern: a
matter of interest or importance to someone.
Example: Oil
reserves are the concern of the Energy Department
Synonyms: responsibility, business, affair, charge, duty, job, province, preserve
Ignore: refuse
to take notice of or acknowledge; disregard intentionally.
Example: He
ignored her outraged question
Synonyms: disregard, take
no notice of, pay no attention to, pay no heed to
