September 2014

Falling Crude

June 5, 2014 was D-Day when ECB unexpectedly cut rates and gave strong signal to the world that all is not well with Europe. We have seen dollar strengthening since then. Most of the asset classes around the world like stocks, commodities, currencies & bonds started crumbling. India was no exception and faced collateral damage. Sensex is down almost 5% and mid & small cap index is down 10% plus. In all this global gloom and doom there is a silver lining - crude has come down sharply by more than 28%.

Last 7 years have been a torrid time for the Indian economy. Inflation has been a structural problem with high crude oil import bills adding majorly to it. Falling crude prices will finally help India to come out of the clutches of inflation. This will also help India to overcome problems like current account deficit, fiscal deficit, high interest rates and inflation. We believe that the recent global sell off is putting pressure on equity redemptions globally. India is facing redemption as collateral damage but this will help Indian equity valuations become reasonable. In this crisis India clearly stands out aided by a stable INR and will be the biggest beneficiary. When flows reverse, India will get higher allocation compared to other emerging markets. We would urge all investors to buy equities before FII flows reverse.

If you want to read our past views on the market you can read our blog below

http://investmentstrategyindia.blogspot.in/