“Fragility is the quality of things that are vulnerable to volatility”. ~ Nassim Nicholas Taleb
In
the tug between Oil & China, Oil wins hands down in terms of phobia it
managed to create last month.
World:
We’ve witnessed
some of the worst
quarterly results by the oil majors in decades and contagious to some of the
largest banks of Europe & of course, the big news from Apple, dethroned by Alphabet to become the largest
capitalized American company.
China: One should always remember that China
was always well managed - be it
economy/currency/fiscal/monetary/production and even the population for
over a quarter of a century. But as it tries to embrace openness
and transparency they grind themselves unable to comprehend and
grasp the enormity. Though, the current situation demands a more mature way to
shepherd from the excessive credit binge by executing long term reforms;
their ad hoc and reactive interventions doesn't allow the markets to settle the
prices.
This
only means we along with China experience something more pernicious than slower growth, that's the worrying
part.
Oil: Oil remains volatile between the operational stress of $20 and financial stress of $40 per barrel. This is keeping the oil industry running
despite the unprecedented stockpiles both onshore & offshore. Four reasons
for Oil to remain here - 1) The downward revision of global
growth projections and the policy missteps by China & other emerging
economies. 2) Lack of
safety net for the central bankers. With the US Fed rate hike, the
reality hit hard though further QE by most countries, not much leeway in terms
of interest cuts. 3) Stretched
balance sheets with overleveraged assets. Also, Sovereign (most patient
investment) Funds are shying away as they still lick their wounds of ’08. 4)
The energy intensity has fallen by 1.4% annually in
the past decade utilizing less oil for each dollar of GDP to be produced thanks
to the energy efficiency and renewables.
What's
in it for you:
Even
as snow clouds gather, India is well placed in terms of its macro economics
with low
inflation, low twin (current & fiscal) deficits and a stable
govt.
Equity: FIIs selling will give us an opportunity to invest aggressively.
The corporate earnings will recover in the coming quarters. Investment is
advised in dips and through systematic route.
Debt: The INR played spoilsport. RBI is
waiting for the fiscal prudency exerted by the govt in the coming budget and
could make a surprise rate cut as early as March. This should make dynamic bond
funds suitable as the yields bottom-out.
Gold: It’s clueless and domestic market
could see a foreign exchange arbitrage.
