EM Decline: India Next

The next leg of EM decline should see India complete its topping pattern.

ZH: India's NPL Crisis Erupts: A Major Shadow Bank Defaults On Three Debt Payments

With the meltdown of IL&FS in motion, another unit, IL&FS Transportation Networks, reported that its chief financial officer, Dilip Bhatia, was demoted to chief strategy officer, for the goal of divestment of assets. The regulatory filing said Bhatia would relinquish his responsibilities as CFO with immediate effect, and the company will search for a replacement.

The shockwaves spread further on Friday, when IL&FS Financial Services, another unit of the IL&FS group, said its managing director and chief executive had resigned.

Why is this important? IL&FS’s outstanding debentures and commercial paper account for 1% and 2% respectively, of India’s domestic corporate debt market as of March 31, according to Moody, while its bank loans made up about 0.5% to 0.7% of the entire banking system loans.

And while bad loans in the Italian banking system have received a ton of attention from investors, India is not far behind and India's economic recovery is built on an even shakier foundation.

India ETFs in U.S. dollars are tracing out a topping pattern, but the Sensex is still in an uptrend.