The deleveraging wave that has swept through global markets this year has left destruction in its wake. Leveraged investors such as hedge funds have had to sell assets to repay their debts. Share prices have collapsed.
India, too, has not been spared. Hedge fund sales this year are a mirror image of the vigorous buying by them in 2007. The damage was inevitable, at least in the eyes of those who spotted danger signals during the bull run.
Has deleveraging abated on Indian shores? India’s top securities regulator seems to say so in the course of an interview published in this newspaper on Tuesday. Securities and Exchange Board of India chairman C.B. Bhave says hedge funds and other leveraged investors have sold what they owned in India to more stable investors, who have a longer view of the market. Bhave thinks this is a silver lining in the dark clouds.
This shift does not imply that share prices will not continue to decline. A lot of that depends on the state of the underlying economy and the financial health of listed companies. Selling, too, may continue. But India could perhaps see fewer episodes of gut-wrenching volatility due to the panic selling by leveraged hedge funds.