Insights

The world is confused about who will blink first, if at all they do!!

January 9, 2020 . Anant Kavuri

The turn of events in the last few days has come as a surprise to many market watchers. While some are still wondering about what the future holds for their portfolios, few have already taken a step ahead and hedged their market positions. 

But would this event risk be of a large scale or would it taper off like the ones which happened in the recent past?!

The current event has come at a very sensitive time, in the world which is already battered with events like uncertain Sino-US trade talks and more locally to the events like tepid growth and ballooning Fiscal deficit. 

Let’s look at the pain points in a case by case manner:

  • The recent turn of events in Iran have created a sense of panic for a risk on, and the first sign of it can be seen in the way Gold has rallied post the news.  There are a lot of views flowing on this quarter as to what would happen to Oil as Iran holds around 8-10% of the oil reserves, but controls the Strait of Hormuz through which almost 1/3rd of world’s oil passes. This has created a sense of panic in the world oil markets and any further rise in oil prices would be bad for the world economy and in particular for large oil-importing countries. We are not even talking of a situation arising out of the bitter feud between Iran and the US. 
  • If we look globally, China is battered with heavy debt (while some call it a ticking time bomb, I would refrain from saying so), the numbers vary from agency to agency and a median number seems to be around $5 trillion. But can we change this in the short term or let’s say even in the medium term? The answer to both of them is NO. Do we need to worry? Yes. China’s Debt to GDP is the highest ever in its history and it’s leading in this indicator for almost all leading economies. This seems to be a concern to a lot of market watchers who say the pain may accentuate if things turn uncontrollable over here and this would spiral faster than anyone can anticipate. The truce on the trade talks seems to be keeping a lot of people happy and 15th Jan should end the speculation on the so-called trade war to take an ugly shape. It’s a good sign that the tweets seem to suggest that we are headed in the right direction.
  • Locally we have been battered with a slew of bad news starting with slowing of the growth rates, ballooning fiscal deficit, GST revenues not growing as anticipated by the government, and the pace of corporate earnings still not showing signs of improvement.

But don’t we all know the news on the global front and the ones happening locally? Yes, we do. We have seen the effect of this bad news on the broader indices even though the larger caps representing NIFTY and SENSEX have shown no signs of tapering down. It’s a simple adage that is followed by the market, which is taking the large caps up, up and above. “Chase the quality at any cost and at any price”. Quality always has takers at any price. This is evident even in our daily lives in the items we buy. So why panic when the large cap indices are running away while the broader indices are still in a tepid zone? On the other hand, there are green shoots visible in earnings growth, a friendlier RBI doing operation twists and the way Infra is pushed into the main stream through enormous spending by the Govt.

The market has its own way of correcting and no past corrections will show similarity on the reasons for the fall. Let’s not dwell upon the thought, “what may happen if all of these events mentioned above come and hit us in one shot.”

Be with quality and price will follow soon; be it mid, small or large cap. If you are a bit of a naysayer, move some of the assets to Debt or even Gold, but do stay invested in equities. Best time to get good stocks at good prices is always when the street’s in panic mode. History has always proved, whether its 2000 or 2008 or even more recently 2015 market falls, that quality always pays to be invested in the long run.

Buckle up, tighten your seat belts, and enjoy the roller coaster. My mantra would always be – “pick quality, stay afloat with quality and price would always follow suit.”

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