Are we staring at another Financial Crisis?

Over the past month, seeing the Sensex tank more than 10% from its record high’s have led made to draw a parallel between the financial crisis of 2008/09 to the one now.

Firstly there is no distinctive co-relation between the reasons or trigger points that caused the slump in both the periods. Rather the reasons are completely different. 

Basically the crash of 2008/09 was attributed to global factors whereas the one now is driven by domestic factors.

The recession of 2008/09 was triggered by the collapse of a 8 trillion dollar housing bubble in the US, wherein the Congress rejected the bank bailout bill which further resulted in the collapse of Lehmann Brothers and Bear Stearns. Secondly, there was a global selloff by FII from the emerging markets like – BRIC – Brazil, Russia, India & China.

Nifty spiraled down more than 50% from 6200 to 2900 in just over 10 months.

The Small Cap Index spiraled down more than 70% from 5200 to 1400.

The recent down trend in the market ( I won’t call it a crisis- given the reasons), are primarily due to the below factors.

1. Imposition of LTCG – Long term capital gain tax.

2. Mutual Fund categorization

3. Rising bond yields

4. Rising crude

5. NPA’s are on the rise

6. Depreciating rupee

7. Corporate governance issues in many companies, resulting in Auditor’s resigning.

8. Banking Frauds

9. FII’s selloff

10. Political un-certainty – It’s less than a year to go for the general election.

Nifty fell from a record high of 11800 to 10300 thereby tanking 13% overall

The Small Cap Index spiraled down 40% from 9600 to 5800.

The 2 major sectors to pull down the small cap index were Banking/NBFC & Real Estate/Infra. With rampant irregularities and no proper corporate governance these sectors were disasters in the waiting. The call of the hour is proper Regulatory framework and stringent rules in order to safeguard the shores.