The markets are at an all-time high but lack of investment is also on the higher end of the curve. Everyone is concerned about when the inflows will be back to pre-covid levels for the financial markets. At the same time, there seems to be cooking of numbers as data from various segments are mismatched. Even the rates of interest are low but no respite for the retail. Redemptions will follow and investments from retail will be under pressure in the coming quarters also. In continuation to my previous article, we find the retail is much under pressure- https://www.analysis2strategy.com/2020/07/the-curious-case-of-mutual-fund-fall.html.
The EMI burden and the redemption of assets very much in positive correlation till now and this will continue further. Retails are under the mental trauma of defaults, harassment by Recovery agents over and above the job loss anguish. In the last 9 months, we have witnessed extensive redemption of investments across every asset class-Real Estate, Mutual funds, FD, Bonds, Gold (gold loan) and even farmlands sell. The redemption particularly in Mutual Funds has a significant impact on the industry in the long term. Every investment/financial advisor and all financial product players are concerned when the recovery of the markets in terms of investment inflow will happen.
On the EMI segment its being found that the bounce rate in value terms is at 31.13% was a tad better than 32.27% a month ago for the EMI segment of retail loan category. Now this raises series of doubts and miss-aligned numbers declared by banks and various other segments.
The job market recovery has a long way to go. It has been found officially that around 21 million people are unemployed –who have lost a job in this pandemic. The small and medium enterprise segment is the biggest suffers where the massive amount of lay off has happened and semi-skilled or replaceable job counts are more. Taking that official number in mind we all know that recoveries in the job market have not been up to the mark. Well, the revival of the job market holds the growth for the Mutual fund and all investment advisors. But in order to get the recovery to post covid levels, the economy will take time till 2022 to get back as the job market is yet to recover. Pay cheques will take significant time to get back to pre-covid levels.
Credit card payments, App-based loan is the biggest suffers. If banks are saying that they are recovery or payment ration of retail loan to the tune of 90% to 95% then that amount is coming from the redemption of assets like MF and Real Estate. The next question which immediately comes in mind is that who are the buyers of Rs.75000cr online shoppers were in the festive season? If the retail job market is struggling and people are unable to service their debt and redemption of assets and financial products are happening then from where does the luxury of Rs.75000 cr come up. As per the recent data on auto-debit transactions by the National Automated Clearing House (NACH) the platform, as much as 40.1% of auto-debit transactions (by volume) had failed in October, largely due to insufficient funds, worsening from a bounce rate of 31.5% in February. Now if the auto-debit failure has grown so much then form where this festive consumption does come forward. As mentioned earlier there are around 21 million jobs are lost.
The moratorium should have been extended for a few more months as the retail market is yet to recover from the job loss and pay cuts atmosphere. We need the wait for the Q4 to get the clear picture of retail loan-related deliquesces and how the banks have managed the same. S&P Global Ratings expects the banking sector’s bad loans to shoot up to 10-11% of total loans as on 31 March 2022, from 8% on 30 June 2020.
One of the biggest suffers are the P2P lending where the lenders are under pressure as due to lockdown most of the people have moved towards their native place and hence the fiasco of recovery have been severe. We find many distribution houses did tie-up with these P2P lending and their clients are now crying for the funds given by them to lend for some hefty returns compared with debt MF. Disaster happens when one product of banana size is compared with a round shape apple.
As long as the job market does not get stable and paycheque don’t get back to Pre-covid level the crisis of Mutual Fund redemption will continue and more importantly, retail debt will no longer be a great business for the banks due to some change in the behavioural aspect of credit card based living style.
What is observed that there is the cooking of numbers as data and information shared by others there is a mismatch. This mismatch speaks loudly that the economy has a long way to go and the loss of pandemic is yet to be ascertained. Most of the retail client’s profile of credit is destroyed for the next few years particularly where the delinquency is high. In the coming quarter banks, retail books business growth will be slow and stagnant. Investments in any asset class will be under pressure in the Calendar year 2021 as the job market will be under slow recovery mode. As privates are slow and conservative in their expansion plans and govt has less ammunition to create jobs the recovery for semi-skilled and unskilled will be tough and time-consuming journey. Till that time asset class redemption cannot be stopped.
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