Deepak Shenoy of Capitalmind.in presents at Traders Carnival TC2019 about the IL&FS Crisis, what's happening with ZEE, the issue at DHFL and a bond market primer.

1. Macro and the Bond Market Opportunity
Deepak Shenoy
https://capitalmind.in

2. DISCLAIMER
Everything on this presentation are provided for educational purposes only and does not constitute specific financial, trading or
investment advice.The nature of this presentation is educational information only and does not attempt to give you advice that
relates to your specific circumstances. Please discuss your specific requirements and situation with a SEBI registered financial
adviser before taking action on any potential investments mentioned in this presentation.
Capitalmind, asWizemarkets Analytics Private Limited (“Company”) and Deepak Shenoy (“Author”) accept NO LIABILITY for any
trades or investments made by anyone for any reason including, without limitation, any basis of the information provided in this
presentation. THIS PRESENTATION MAY HAVE INACCURACIES in data, prices, dates or opinions and no liability is accepted by the
Company or Author for such inaccuracies. By viewing any material or using the information within this presentation you agree that
this is purely educational in nature you herebey indemnify Deepak Shenoy and Capitalmind from any liability from the knowledge
gained in this presentation, and will not hold the Company or Author responsible for loss or damages resulting from the content
hereby provided.
Equities, Futures, options, and Bonds are inherently risky and involve loss of capital.You agree that you are aware of the risks and be
willing to accept them in order to trade or invest in these instruments.You agree that you may lose some or all of the capital
deployed in such trading, whether or not based on information provided in this presentation, and if you do have such losses, the
Company or Author is not responsible for them.The past performance of any instrument, stock, bond or other strategy is not
necessarily indicative of future results. Please do your own due diligence before investing or trading.
The Author is a SEBI registered Research Analyst, and the Company is a SEBI registered Portfolio Manager, and both the Company
andAuthor may have positions or recommendations in the securities mentioned in this presentation. Please assume bias.

3. The bond market?

4. The Fixed Income Market
• Coupon = Interest rate
• Yield = Also Interest rate
• Issuer = Who’s paying back
• Credit Rating = Can they pay?
• Yield Curve = Hold on.
Important
stuff to
know

5. Coupon andYields
Coupon
• Bond has a face value
• Coupon = interest rate on face value
• Example: 8% coupon on 100 rs. FaceValue
Yield
• Bond can trade above face value
• Example: Bond trades at 105
• Yield = Rs. 8 / 105 = 7.
Concept
• Prices are traded
• Yields are implied

7. Yield Curve

8. Why are bonds useful?
• Think of them as traded fixed deposits
• You can’t “preclose” them
• You can sell them in the market
• If interest rates fall
• Yield will fall
• Price will go higher
• A 1% fall in yield = an 8% change in price, for example

9. What Is Useful?
• Bond prices “lead” equity markets in understanding risk
• Yield moves tell you quickly about liquidity
• Interest rates now depend less on RBI and more on bond markets
• Liquidity and rates can murder equity markets

10. The ILFS Crisis:
September 2018
• Massive Infra company
• Has 91,000 cr. Of debt
• A good portion is in bonds
• Mutual funds have bought these bonds
• DEBT funds
• AAA Rated till Aug 2018
• Boom. It defaults
• Why?

11. What went wrong?
Financing pain
A 10 year project needs 10 year financing
And what happens if delays happen, in year 10?
Needs: Rollover
New Debt to Pay Old Debt
ILFS kept doing this
Even issued 1 year bond because it could

12. It Hit Mutual Funds
• Debt funds are boring
• Assumption: Safety and Low Return
• Funds would buy bonds
• Like Government paper (very low yield)
• Like NTPC bonds (not that big a yield)
• Like IL&FS bonds (AAA but high yield)
• Even SHORTTERM funds did this.
• Very boring charts.

13. The Default: Sep 2018
• IL&FS couldn’t rollover some loans
• So it defaulted on one such paper.
• It was downgraded.
• Downgrade means mutual funds have to take a mark to market loss
• Many Debt mutual funds saw their price FALL
• What would investors in these funds do?

15. Boom! Cascade
• Investors take out money
• Funds cannot rollover debt because they have outflows
• They can’t sell IL&FS because no one wants to buy
• So they sell everything else
• When more selling pressure: prices fall
• So,Yields Rise
• Massive tightening of liquidity in October 2018

16. It’s not over yet
• Many companies have ILFS exposure
• 400 cr even in ApolloTyre
• Kotak appointed chairman, trying to sell and recover money
• NCLT process
• May not get much – 40 to 50 paise for every rupee invested.
• TIME! (Years?)

17. The Zee Crisis
• Zee is debt free
• But
• Zee’s promoters are not
• Invested in infra, power, road
projects
• Raised personal money through
mutual funds (issued bonds)
• Against collateral of zee shares.

18. ILFS Hits Zee Promoters
• Mutual funds had no money or enthu to rollover (Oct 2018)
• Zee Promoters had to rollover because ponzi
• Two months of desperately trying to find money
• In December they gave up and said we will sell our shares
• Jan 19: Zee shares fall 30%
• Because: Bond holders don’t like defaults.They sell collateral = zee
shares.

19. Zee Struck Agreement
• “please don’t sell our shares”
• Strategic buyer for half stake
• “moratorium”

20. How Big Is Zee Promoter Issue?
• 15,000 to 20,000 cr.
• Mutual funds have majority but also with banks
• No default yet on mutual funds
• Just a “covenant breach”.
• Zee promoters need to give more shares
• They don’t want to
• Default likely in March 2019
• Another wave of mutual fund damage
• Already some gave up: Zee saw 275 cr. Selling on Friday

21. DHFL
• Started from the IL&FS time
• Massive selling of shares by operators
• Had 47% of borrowing out of 1 lakh cr in bonds
• Investors wouldn’t rollover
• Crisis.

22. In Liquidity Crisis, Bad News Comes
• Cobrapost
• News of promoters doing crazy things
• But can there be opportunity?
• Bonds trade at ultra-low valuations, no defaults in DHFL yet.

24. The Macro Is Important
• Liquidity (Are banks/nbfcs/companies able to raise money?)
• At what price (interest rates)
• How will govt/RBI react?
• Cut rates
• Provide liquidity
• “Stimulus”

25. Indian Special
• Bonds and Liquidity => Operators who trade stocks
• Take out liquidity => Operators have to sell
• Higher margins, SPAN etc => Liquidity
• All big market falls are led by liquidity crunches

26. Trading Bonds

27. You can trade
Bonds
Buy bonds online on NSE/BSE
•Even govt guaranteed bonds
•Gsecs for purchase
Buy
Buy bonds offline through sellersBuy
Buy or sell bond futures on NSE
Buy or
sell

28. IDFC Bank

29. Other such bonds

30. And DHFL!

31. 26% in three years
• = Double your money
• But obviously, huge risk
• No easy hedge except buy puts

32. “pari passu” = not in bonds
Senior/Subordinate Secured/Unsecured Call/Put option Maturity Date
Coupon Rate
Premium or
Payout?
Tax Free/Taxable

33. Liquidity: Important

34. Buying Bonds
• Taxable Interest
• But capital gain if you sell
• Capital gain can be offset by losses
• Some bonds are tax-free
• NHAI, REC etc.
• Bonds Held > 1 yr = LongTerm Capital Gains

35. Government Bonds
• Govt Issues Bonds Every Friday, Auctioned
• Mature at various times (5 yrs from now, 10yrs etc)
• 10 yr = most liquid
• Can buy through brokers now in auction
• Govt bonds super safe, provides even 40 year lockin of interest rate (currently 7.7%)

36. Trading Bond Futures
• Bet on the price of a certain 10 year bond
• Mainly
• 7.17% GS 2028 (matures 2028)
• Trade on Clean Price = Inverse ofYield

37. Bond Futures
• Tick of 0.0025, Rs. 2 lakh exposure per contract
• Move of 0.01 = Rs. 10 profit or loss
• Margin = Rs. 4,000 per contract
• IfYield Up 0.10%, price down 0.70 rupees = Rs. 700 per lot if you are short. (Leverage)
• Settled against expiry date, contract price, Clean price

38. Bond Prices: Impacted By
• Interest Rates
• Sudden rise or fall
• Time left to mature
• Greed and Fear
• Liquidity

39. So
• Bond markets are seeing liquidity crisis
• Can easily seep into equity markets
• DHFL in trouble (both equity and debt)
• Zee Equity inTrouble because of promoter bonds
• Debt Mutual Funds in a crunch
• Opportunities will come:You have to be alert.
• Example: SBI bonds at 10%, or HDFC Bank bonds at 11%
• Certain government back bonds already at 11%

40. DISCLAIMER
Everything on this presentation are provided for educational purposes only and does not constitute specific financial, trading or
investment advice.The nature of this presentation is educational information only and does not attempt to give you advice that
relates to your specific circumstances. Please discuss your specific requirements and situation with a SEBI registered financial
adviser before taking action on any potential investments mentioned in this presentation.
Capitalmind, asWizemarkets Analytics Private Limited (“Company”) and Deepak Shenoy (“Author”) accept NO LIABILITY for any
trades or investments made by anyone for any reason including, without limitation, any basis of the information provided in this
presentation. THIS PRESENTATION MAY HAVE INACCURACIES in data, prices, dates or opinions and no liability is accepted by the
Company or Author for such inaccuracies. By viewing any material or using the information within this presentation you agree that
this is purely educational in nature you herebey indemnify Deepak Shenoy and Capitalmind from any liability from the knowledge
gained in this presentation, and will not hold the Company or Author responsible for loss or damages resulting from the content
hereby provided.
Equities, Futures, options, and Bonds are inherently risky and involve loss of capital.You agree that you are aware of the risks and be
willing to accept them in order to trade or invest in these instruments.You agree that you may lose some or all of the capital
deployed in such trading, whether or not based on information provided in this presentation, and if you do have such losses, the
Company or Author is not responsible for them.The past performance of any instrument, stock, bond or other strategy is not
necessarily indicative of future results. Please do your own due diligence before investing or trading.
The Author is a SEBI registered Research Analyst, and the Company is a SEBI registered Portfolio Manager, and both the Company
andAuthor may have positions or recommendations in the securities mentioned in this presentation. Please assume bias.

41. Questions?
Mail: deepakshenoy@capitalmind.in
Twitter: @deepakshenoy
https://capitalmind.in