Asset Managers Explain Why Investors Should Not Panic About IL&FS’ Debt Woes

Investors shouldn't panic because of Infrastructure Leasing & Financial Services Ltd.'s debt defaults, according to at least two asset managers.

“It doesn't look like it will evolve into something larger because the regulators are taking action and the mutual fund industry is well-equipped to deal with this,” Mahendra Kumar Jajoo, head of fixed income investments at Mirae Asset Global Investments, said in an interview with BloombergQuint.

Lakshmi Iyer, chief investment officer of fixed income at Kotak Asset Management Company, said IL&FS is an evolving situation and it's in the interest of the industry not to panic. It's important for investors to stay the course, she said, adding that the situation is nowhere close to the 2008 crisis and much of it can be reversed in an orderly manner.

India's benchmark indices fell more than 3 percent intraday on Friday, swinging the most in four years, on liquidity concerns over non-bank lenders, especially housing finance companies. Shares of Dewan Housing Finance Company Ltd. had plunged as much as 60 percent after reports that DSP Mutual Fund sold its bonds at a higher yield.

Banking and financial market regulators, along with the country's largest bank, on Sunday reassured nervous credit markets, saying that they stand ready to step in to ensure smooth functioning of the financial markets. The Reserve Bank of India will also meet shareholders of IL&FS on Sept. 28 to discuss a capital-infusion plan.

Mutual funds that invested in IL&FS have already marked down NAVs based on their exposure. Yet, mutual fund investors need to worry, according to Jajoo. “Most of the exposure of mutual funds is to very good companies.”