#39 US releases tariff list and What was the IL&FS crisis.
7th July'25 - 11th July'25
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Markets and Macros
Nifty50 has corrected this week, but there was no proper trigger for this correction. Most of the major sectors in Indian markets have corrected this week except GOLD, Oil and selective stocks in FMCG.
FII Activity this week.
DII Activity this week.
The index has corrected but the broader market isn’t moving much. FIIs are still being careful and vigilant about what exactly are the outcomes of trade deals which are being negotiated with the US government.
But, why did the index correct? it corrected because market doesn’t like uncertainty. Nifty50 was already trading close to all time high and the valuations were a little stretched.
But what corrected the most? it appears that IT companies corrected the most. Why so? because dollar is struggling, IT sector is going through strong headwinds. You may see first blood in TCS’s Q1 result for FY26.
The earnings season has commenced for Q1 FY26 and our move to 26,000 would totally depend on quarterly results.
Another key trigger would be trade tariffs, which is still under negotiation for India. European Union has been slapped with 30% trade tariff which would be expensive of European countries. Italy, UK and Germany has already stated that they want to negotiate the trade deal further.
Below is the list of tariffs imposed on the respected countries:
Further more, if India gets a better deal than other South Asian countries, we might see a short surge in industries like Pharma, IT and Automobile.
Topic of the week: The IL&FS Crisis
What Happened and How It Shook the Indian NBFC Sector
In 2018, India’s financial system was hit by a major shock — the collapse of IL&FS (Infrastructure Leasing & Financial Services Ltd.), a company that most people had never heard of, but one that played a very important role in India’s economy.
The IL&FS crisis didn’t just affect one company. It sent shockwaves through the NBFC sector, impacted banks, mutual funds, and even reached ordinary investors.
In this article, we’ll explain in simple language:
What IL&FS was
What caused the crisis
How it impacted NBFCs in India
The long-term lessons and changes it brought
🏢 What Was IL&FS?
IL&FS was a large infrastructure development and finance company set up in 1987. It was not a bank, but a non-banking financial company (NBFC). Its main job was to fund and develop large infrastructure projects such as roads, bridges, and energy projects.
It had more than 300 subsidiaries and group companies, and was considered very safe because its main shareholders included:
LIC (Life Insurance Corporation)
State Bank of India (SBI)
ORIX Corporation (Japan)
HDFC
In short, IL&FS looked stable, trusted, and reliable — until 2018.
💥 What Happened in the IL&FS Crisis?
In September 2018, IL&FS defaulted on its debt. That means it could not repay the money it had borrowed from banks, mutual funds, and other lenders.
The total debt of the IL&FS group was a huge ₹94,000 crore.
This triggered a panic across the financial system. People started asking:
If IL&FS can collapse, who else might be in danger?
Are NBFCs really safe?
It became one of the worst financial crises in India since the 2008 global financial crisis.
🔍 Why Did IL&FS Collapse?
There were several reasons, all happening at once:
1. Too Much Borrowing (High Leverage)
IL&FS borrowed heavily to fund long-term infrastructure projects. But many of these projects didn’t make enough money on time. This caused a cash flow mismatch — it had to repay loans now, but its income was delayed.
2. Poor Project Execution
Many projects were stuck due to land issues, environmental clearances, or state government delays. So, IL&FS wasn’t earning enough revenue.
3. Lack of Transparency
IL&FS had hundreds of group companies. This complex structure hid the real financial condition. Internal audits were weak, and accounting practices were questionable.
4. Credit Rating Failure
IL&FS had AAA ratings (the highest safety level) even weeks before default. This misled mutual funds, banks, and investors who thought their money was safe.
5. Poor Governance
The board failed to act in time. Big decisions were taken without proper risk analysis.
💣 Immediate Impact on NBFCs
NBFCs rely heavily on borrowed money — mainly from banks and mutual funds — to lend to customers. After IL&FS collapsed:
✅ 1. Liquidity Crisis
Banks and mutual funds stopped lending freely to NBFCs. Suddenly, many NBFCs could not borrow money, even if they were healthy.
This became a liquidity crisis — not due to losses, but due to lack of cash to continue operations.
✅ 2. Panic Among Investors
People began withdrawing money from debt mutual funds, fearing more defaults. This forced mutual funds to sell NBFC bonds quickly, causing prices to fall.
✅ 3. Increased Borrowing Costs
NBFCs that earlier got loans at 8–9% now had to borrow at 11–13% or more, shrinking their profit margins.
✅ 4. Slowdown in Lending
NBFCs became cautious. Many stopped giving loans to small businesses, vehicles, housing — all of which rely on NBFC funding.
✅ 5. NBFC Stock Crash
Shares of NBFCs like DHFL, India bulls Housing, and even well-known ones like Bajaj Finance fell sharply during this period.
📉 Numbers That Show the Damage
In the 6 months after the IL&FS default, NBFC lending growth fell from ~20% to 6%.
Housing finance NBFCs saw disbursements drop by 30–40%.
Debt mutual funds faced redemption pressure of ₹1 lakh crore in just a few weeks.
🏦 Government and RBI Response
The crisis forced the government and the RBI to take quick and bold steps:
✅ 1. IL&FS Board Replaced
The government removed the IL&FS board and appointed a new one under Uday Kotak. The new board started the process of selling assets and repaying debt.
✅ 2. Special Liquidity Window
RBI gave banks permission to lend more to NBFCs. Later, a Partial Credit Guarantee Scheme was launched to help NBFCs raise funds.
✅ 3. Tightened NBFC Regulation
RBI announced:
More supervision of NBFCs
Liquidity coverage ratios (LCR) for large NBFCs
Rules on related-party lending and asset-liability matching
✅ 4. Debt Mutual Fund Reforms
SEBI also introduced changes in how debt funds invest and disclose risk.
🧠 Long-Term Impact on NBFC Sector
🔒 1. Stronger Regulation
NBFCs, once loosely regulated, are now under tighter RBI control, especially those with assets over ₹1,000 crore.
🧮 2. Better Risk Management
NBFCs are now more careful with their asset-liability mix and avoid overdependence on short-term borrowing.
🧑💼 3. Focus on Governance
Boards are under pressure to improve internal audits, transparency, and ethical behavior.
📉 4. Market Polarization
Big, well-managed NBFCs like HDFC Ltd., Bajaj Finance, and Tata Capital gained more trust, while weaker NBFCs struggled or shut down.
📚 Lessons for Investors and Policymakers
Don’t Trust Ratings Blindly
IL&FS was rated AAA till just before its collapse.Watch Leverage and Liquidity
Even profitable companies can collapse if they don’t have enough cash to meet short-term obligations.Simpler Structures Are Better
Complex group structures can hide risk and make governance weak.Regulation Needs to Be Proactive, Not Reactive
The IL&FS crisis forced RBI to become more active with NBFCs — this should’ve happened earlier.
Watchlist
Biden during his tenure, declared that his government would bring the new world order. But, there is are new bullies in the town. China, Russia and India are now playing their cards. Check this out
Thank you for all your attention till this point.
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