Archegos Capital collapse will not have any domino effect on India

PALAK SHAH Mumbai | Updated on March 31, 2021

Credit Suisse, Nomura suffer heavy losses due to high exposure


The collapse of Archegos Capital Management, which led to a $30 billion fire sale in the global equity markets, is unlikely to have a major ripple effect in the near future on the Indian stock market, experts told BusinessLine.

The reasoning is that most part of the fire sale linked to Archegos has already happened and it did not have any direct holding in Indian companies.

$30-b leveraged positions

While global markets crashed on Monday following the Archegos’ debacle, Indian market rose sharply on Tuesday. However, domestic markets fell on Wednesday.

Archegos is a US-based family office that was managing private money with less than 15 investors. According to the US media, Archegos was estimated to have managed about $10 billion of its own money but its total positions that were unwound last week approached $30 billion based on the high leverage it obtained from banks. The firm was asked to liquidate positions as it was unable to meet margin pressure on its derivative bets.

Among the major stocks sold by it were ViacomCBS, GSX Techedu, Baidu and Discovery.

The most hit among Archegos prime brokers are Japan’s largest investment bank Nomura and Credit Suisse. Nomura has warned of a possible $2 billion loss. The share prices of both Nomura and Credit Suisse have crashed by more than 15 per cent. Archegos' other clients’ prime brokers were Goldman Sachs, Morgan Stanley and Deutsche Bank.

“All the banks and prime brokers that lent to Archegos could see their upcoming quarterly profits getting affected. Majority of the fire sale in stocks has already happened and this isn't the Lehman crisis. The 2008 crisis was an unforeseen event. But there is way too high global liquidity in the monetary system to have a worldwide collapse of stock markets,” said a Singapore-based fund manager.

P-Notes: Negligible

New reports have suggested that Archegos fire sale has led to pressure on Participatory Note (P-Note) holding in Indian markets. However, fund managers say that derivative linked P-Note holdings in Indian markets are negligible to have any major impact.

P-notes are the controversial offshore derivative instruments issued by foreign funds with bases in tax havens.

Published on March 31, 2021

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