A Watchtower by the Lake

Reproducing an article posted on my Linkedin profile on December 31, 2019 Source: Richard Lee, Unsplash We had examined the risk perception shifts and the impact on availability of risk capital in part one for infrastructure and part two for financial services. In this concluding part we will look at a few examples of lenders, investors and corporates who seem to beat risk perception traps, examine how external factors influence risk perceptions and touch upon a few decision-making factors The few who beat the traps…. 1. Bajaj Finance: In the aftermath of the Lehman crises when most lenders vacated the highly risky unsecured lending space, Bajaj Finance till then perceived as a two wheeler financier scaled up its consumer lending business massively and today in the last decade has provided multi bagger returns to its investors. Current valuation justifications though are an entirely different matter 2. HDFC Bank: While most of its peers were focussed on growing t...

Reproducing an article posted on my Linkedin Profile on December 28, 2019 Source: Unsplash In the hay days before the Lehman crash, investors saw the huge potential of the I in the BRICS economy and were willing to fund brokerages to expand their business. Brokerages often got valuations for simply the number of branches, sub brokers or market share they possessed and the money received was to be utilized for margin financing to grow the brokerage business. Every brokerage house in India drew up plans to become a full-service investment bank adding new layers of products to the core broking or investment banking business. Today for most of these players broking is a side business and the core has become lending. Around the same time NBFCs, known as specialty finance companies in certain markets also found a lot of interest. Traditional Indian NBFC models were designed around a core competency viz. used CV finance, equipment finance, new CV finance, gold finance and housing fi...

Reproducing an article I had posted on my Linkedin Profile on December 25, 2019 Source: Phoneix Han, Unsplash The GDP estimates are down to 5.1%, the Index of Industrial Production (IIP) has turned negative, food inflation is high and there are murmurs of stagflation in the pink papers. Amidst all the gloom, is it possible to examine whether this could have been predicted? Have the investors, corporate managements, banks and governments missed the early warnings signs that arose much before the auto sales numbers and unemployment numbers. The answer perhaps lies in understanding the availability of risk capital and risk perceptions of large investors, lenders and perhaps even the general public at large. Also is there a possibility of predicting this movement, which in many ways contrasts with the unleashing of "animal spirits" the market expects from the government. I attempt to explore the risk capital and risk perception shifts over the last two cycles in three...

Photo by Justin Clarke - Unsplash In Part I, we had looked at the 5 fundamental human behaviors shaping the response against the Corona Virus and influencing the outcome. In this part we attempt the art of soothsaying. As we peer into the crystal ball and look at the future, we must note crystal ball gazing is prone to risks.  1. Fear Vs. Hope Fear is a basic human instinct and so is hope. Most investors are long only and bull runs last longer than bear stampedes.  We need whole departments of risk guys to think about the negatives and prevent our hopefulness from doing long term damage. Risk departments weigh recent experience heavily, ensuring no crises repeats itself immediately thereafter.       i.     As the supply is ramped up, the FOMO (Fear of Missing Out) syndrome will die out  and so will the fear induced hoarding response     ii.       Most OECD countries are yet to peak ...