Its been some time since I have posted on the blog, so I thought I would gently sidle back with a bit of a flashback.
The Financial Crisis of 2008 was an my first personal exposure to the effects of economic policy on real things like the price of vegetables. Until then, I was either too immature and young to even follow stock markets and the interaction with the so called “real items”, or I was an armchair observer, merely observing shifts in various underlying items without being able to correlate these shifts with an understanding of what these shifts resulted in.
But the crisis of 07-09 was quite a difference. It starts off when I was still in B School, having received along with a friend an almost 6 figure sum as prize money for a Business Plan competition. Of course, while father and family were already making house renovation plans with the money, my friend and I were busy asking R, our resident expert on everything “Whats the stock market”.
2008 was the year of arguably the biggest hyped listing in India, Reliance Power Limited or RPower. It was a big enough deal that everyone from my night canteen shop owner to the laundry man at the hostel applied for the IPO. Luckily for my friend (SA) and I, neither of us put money into that boondoggle. We found far better (and faster) ways to lose our money.
RV enlightened us about the wonders of the futures and options market, where leverage is (almost) unlimited and you can multiply your returns faster than anything. Being a smart cookie though, he demurred at the thought of actually putting any funds into this particular venture. His goal was higher than mere filthy lucre. At the time RA was trying to become the second largest shareholder of Bharat Heavy Electricals Limited (BHEL), and diverting funds to less productive tasks was not up his alley.
So SA and I decided to forge on our lonesome. SA had already acquired an ICICI direct account from his misspent youth at Infosys Chennai, and we promptly dumped a large portion of our funds into this account going long on the NIFTY 50. Cut a long story short, we wiped out our capital in 3 trading days.
And it was just my luck that during placement season, I was placed in the banking industry with a new private sector bank. What I knew about banking then was that banks took deposits and then put those deposits into loans. Deposit interest was less than the interest the bank collected on loans. So banks made money. Quite simple.
Well, I was disabused almost immediately. I was sent to the corner of the banking world called trade operations in 2008 May. This is the place where they issue bank guarantees and Letters of Credit and do things like Buyers Credit. Not a loan to be seen no matter how hard I looked. The local Bank Guarantee market was not really affected by the financial crisis. But the Buyers credit market increasingly began looking more and more tense as the year went by. By the time August and September rolled by, the credit crisis was not some global event that I read in the headlines, but a daily grind of what new craziness LIBOR was up to. Looking back with the benefit of 10 years of hindsight, it seems quite funny, but I assure you that it was not. As a newbie in the industry with no baseline to compare against, I thought that this was the “normal” day in the office.
And we were a new bank with relatively low legacy book that was going bad in our face. Octobor came and went and markets tanked like they were never going to recover again. That is when SA and I put a small sum of money into stocks which we thought would not go out of business (ICICI Bank, Reliance Industries, Infosys are the ones I remember). By March, our investments were under water and my bank’s stock price had tanked to about its issue price during its IPO. And my workday looked like purgatory, heading into office by 8:30 am, and barely catching the 11:30 pm local train back home every night. But like most things, it was darkest before dawn. By April 2009, things were looking up, and the world was a much more stable (albeit less interesting place).
As a postscript, me of a decade ago thought nothing of coming home at midnight and then tracking US markets till their close and then going to sleep and still be able to wake up and work the next day. Now, the very thought of doing that for 6 months at a stretch makes me want to go and take a nap!