Under the lens

Why Indian mutual funds took a big bet on IL&FS’s (good) bad debt

First, the rating agencies missed the tell-tale signs in the balance sheets. Then the fund managers failed to do their due diligence and took the flawed ratings as the final word. To complete the mess, they concentrated their position on the debt of a single company.
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Uday Kotak, non-executive chairman of the newly constituted board of IL&FS; Punit Paranjpe/AFP/Getty Images
The sorry shape of IL&FS has one set of people particularly worried. The CEOs of mutual funds, who are collectively holding INR3,000 crore worth of IL&FS debt, and are getting ready to mark the value down on their books.After the equity sell-off in mid-caps and even large-caps, this is now another punch to the gut balance sheet with a lot of subsidiaries. We found it difficult to analyse,” he says. He had tried to understand the balance sheet of the company a few years ago and realised that he had more questions than answers.That is a pattern more fund managers better keep in mind if they don’t want to lose their investors’ money.
The sorry shape of IL&FS has one set of people particularly worried. The CEOs of mutual funds, who are collectively holding INR3,000 crore worth of IL&FS debt, and are getting ready to mark the value down on their books.After the equity sell-off in mid-caps and even large-caps, this is now another punch to the gut balance sheet with a lot of subsidiaries. We found it difficult to analyse,” he says. He had tried to understand the balance sheet of the company a few years ago and realised that he had more questions than answers.That is a pattern more fund managers better keep in mind if they don’t want to lose their investors’ money.

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