When a central bank with little regard for reviving assets , washes it’s hands off an issue , issued an ad hoc circular in Feb 18 – it not only signalled strongly that they are happy at calling a 80 to 90 pct haircut as resolution , but that they looking at higher rates .
Not be left behind an otherwise very smart regulator , #sebi issued norms in April 18 , which virtually doubled the scritness index criterion, for scrips to remain in the futures and options market .
Sucking liquidity away -some short term and many over a 6 -8 month rolling period .
The government’s both at state level and central level , continued efforts to get the rural vote by distributing money via legal and fancy , though aptly named schemes.
Liquidity is always limited and cannot be increased if confidence is lost. .No regulator or government can keep self inflicted deep financial injury contained within a sector. It will reflect in debt yields, stock prices and diminish wealth , collapse an already fallen real estate market and eventually lead to a precipitous fall in demand across all sectors .
At the end liquidity is king, which was either by design or by sheer mis management or unfortunate but horrible timing, sucked out .
To get back to the stable zone , the first steps should always be to correct mistakes, and there is no shame in that, desparate times require desperate and creative measures ; before we become truly desperate , some steps that can be taken are :
1. Roll back the Feb 18 circular and bring in sector specific restructuring schemes . The markets , investors- either debt or equity should never get the sense that a greater than 70 pct haircut can be pushed to acquire public money and assets.
2.#sebi may work towards diluting the April 18 circular and would do well to bring liquidity back to the markets by reducing lot sizes , making scrips available in F and O by diluting delivery turnover and market capitalisation norms by 75 %
3.Government must not be careless in prioritising election popular money distribution schemes, by whichever parameter .
4.Government and RBI must instill confidence in PSU banks and PSU enterprises; that would go a long away in calming markets and as well instill confidence that we are still governed by a government which does more than just lip service .