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Moneycontrol Pro Panorama | Why the insolvency framework needs a reboot

In today’s edition of Moneycontrol Pro Panorama: EMs’ return gift, the Green Pivot, Q2 has a story to tell, Go Fashion India IPO takes off, how cryptos work, and more

November 17, 2021 / 05:24 PM IST
Representative image

Representative image


Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Five years after the insolvency law’s 2016 dateline, there hangs a question on whether the law is serving its purpose. It may seem a strange question to ask, as some large assets attained successful resolution under this new law. But success has not been universal.

There have been cases where the recovery has been very low, leading to doubts on the process itself and if it’s being gamed. Delays are another bugbear, mostly due to litigation.

A panel constituted by the Insolvency and Bankruptcy Board of India (IBBI) to measure the law’s outcome submitted its report last week. The broad picture:  “About three out of every four ongoing cases are pending more than 270 days. Financial creditors have realised only 36 percent of their claims on average.”

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The IBBI working group counters these stats by asking would the outcome have been worse if the IBC was not in place, and the results if different metrics were used — for example, analysing recovery as a percentage of the liquidation value instead of the written down value of the asset. In effect, they are implying that if the borrower’s asset has depleted in value, then the realisable value will too. One undeniable change that the IBC has certainly brought about is to alter the balance of power in favour of banks. How banks use this power to ensure resolution is a different matter altogether.

But there are improvements that can be made, as my colleague Ravi Krishnan, who has tracked the insolvency law closely over the years, writes in today’s edition. “The fact remains that over time the assets of defaulters deteriorate in value, remain unproductive mostly and are prone to capture by defaulting promoters. The tribunals have to admit cases quickly and move fast.” Do read to know what remains to be done.

Another place requiring a reality check is the stock market. In today’s edition, we give you an overview of domestic earnings in the September quarter, which reflects healthy sales growth on the back of improving business conditions. But profitability is getting squeezed by rising costs — as wages, raw materials, energy and freight costs are trending up. While these pressures will continue, several sectors are still expected to outperform. While they keep one eye on earnings, investors should also look at a bond yield-related indicator to get a clue of where markets may be headed.

Here’s a view from the Bank of America survey of fund managers on the outlook for EM equities.

After a domestic roundup, it’s time to go West. The US earnings season is about to draw to a close and has been a good one, with 81 percent of S&P 500 companies surprising analysts on the positive side. One key takeaway is that markets are reacting more negatively to an earnings miss than they are to an earnings beat. What are the other takeaways? What’s the inflation-related outlook and what can nullify its impact? Read to find out.

Investing insights from our research team: 

Coal India: Higher dividend yield the only draw

Go Fashion India IPO: Will this apparel player make a strong debut at the bourses?

Va Tech Wabag: Strong execution, orders in hand to support stock

What else are we reading today?

Learn | Crypto Learn: Why was cryptocurrency invented, and how does it work?

Why President Biden should keep up the pressure on the Chinese leadership

The Green Pivot: Thermax’s bet on green energy transition begins to pay off

Bank credit no longer the main source of funds for India’s commercial sector

Who will be the new Chairperson of the US Fed?

Insurgents take on the scandal-hit Big Four (republished from the FT)

Technical Picks: Cerebra IntegratedL&T Finance HoldingsCyient and Apollo Hospitals (These are published every trading day before markets open)

Ravi AnanthanarayananMoneycontrol Pro
Ravi Ananthanarayanan

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