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Information sources are plenty and whether we look for data or not, it is being pushed our way every second. We have become voracious consumers of the data but is it really adding to our actionable intelligence?
As if Covid-19 scare and Yes bank meltdown was not enough, there is now a video that has been circulating about the health of Indian banks and how to measure it. It claims to have found the one magic bullet – Mcap ratio of Total Deposits to Market Cap measured by the stock price - that decides the fate of the banks. Lower the number, better it is, opines a very popular media channel. According to this logic, the solvency of a bank changes from minute to minute with the volatility in the stock price. If a bank has lower total deposits and/or higher Market Cap, the health of the bank is good. The analysis is flawed. It is very unfortunate that the media has resorted to sensationalism rather than responsible journalism and accurate reporting.
Another one, a leading national newspaper headline today “1942, A Horror Story: Sensex suffers worst 1-day loss ever”. Then they give instances of the highest fall of the market since 2008. On Jan 21, 2008 when Sensex fell by 1408 points, the index was around 17000 which means a fall of more than 8%. On Oct 24, 2008 when Sensex fell by 1071 points on a base of around 9700, in percentage terms the fall was 11%. Yesterday’s fall was 5.2% which is not the highest.
Just to clarify the air on how to evaluate the health of a bank. “Solvency of banks is internationally based on Capital to Risk-Weighted Assets (CRAR) and not on market cap” says a tweet of RBI.
Making sense out of infinite data, defining its relevance, taking or not taking action and keeping patience above the noise become fundamental tenets of successful investing. We as Advisers are always helping you do that. While there is a lot of scare in the market right now and positive news is hard to come by, Mitraz continues to implement steps to manage the risk better.
Speak with an Adviser at Mitraz to discuss your portfolio, to understand the actions that can be taken for managing risks and plan for future.
Market volatility, sometimes high and sometimes low, is certain so let’s take it in our stride. Let’s not be affected unnecessarily with the “Breaking News” intended to catch our attention, increase the TRP and suppress the rationalism.
The writer is the Managing Director of Mitraz Financial Services Pvt. Ltd and can be contacted at email@example.com