I was about to finish this mail last weekend itself, but a sudden explosion in the middle east stopped me from doing it. Iranian military commander QassemSuleimani was killed in a US precision drone attack. For these US machines (drones) it’s quite a common practice to hunt down targets that are otherwise difficult to get, but this hunt is different. They killed a Serving Military General of a Sovereign nation and this may call for war.
For the past few days, our lash in the middle east has been unprecedented, with millions of Iranians mourning and calling for “REVENGE”. Most importantly Crude prices spiked over 5% in the last 4 days & only to soften a bit today.
- Iran militarily & technologically can’t stand the MIGHT of US Fire Power & Tech. All it can do is wage proxy wars on US assets & personnel in the Middle East and embroil the Middle East.
- Tension in the Middle East will lead to higher crude oil prices & energy guzzlers like India (we import almost 80% of our energy needs) will be impacted adversely.
- Iran also controls the Strait of Hormuz which is the route to almost 24% of global oil transportation, blocking it can send oil tankers for a Runaround & disrupt the entire Global Oil Transportation.
- *IMP: Geo-Political issues are not new to Markets, & in the past have had a very limited impact on markets. So temporary correction (5%-10%) cant be ruled out if Iran Pursues Americans Assets aggressively but will not lead to any massive correction in Markets. Hence any abrupt reaction is uncalled for.
- Any global Uncertainty or conflict makes the Yellow metal shine more. Gold touched $1,582.59 an ounce, the highest since April 2013, yesterday. Owing to Global Trade uncertainties & brewing Middle east tension, a bite in Gold ETF is recommended.
- Indian Equity Markets saw a sharp run-up between 2014 & 2017 amid a host of factors, & broader markets turned bearish beginning 2018, though Frontline indexes (Sensex & NIFTY) continued to rise on the back of Select few Stocks.
- In 2019 Large Cap Stocks have risen to Historic Highs driven by Foreign funds FPI & DII ($ 14 B & $6B). Though it was polarised to Select a few stocks Only.
- Interesting: Jan 2018 -10th Dec 2019:
- Large Cap: 13%
- Midcaps: (-22%)
- Small caps: (-38%)
- Morning Star estimated 10 Years Valuation Implied: Indicate Strong trend Growth & Improving Corporate earnings for Indian Markets, Corporate tax cut is expected to give a Fillip. Corporate Earning growth will improve in Consumer demand, Export & private expenditure to see a revival.
- Still, a secular border rally looks more unlikely in 2020 and it will be stock pickers markets, as investors will still want to cling to top-performing/trustworthy names for some time.
- EARNINGS GROWTH: Frustration for last 5 years. Over the last 4 years, Indian Inc. PAT has grown at a dismal 1.6%, way lower than inflation. Hence revival in earning is something one can expect and should be the major reason for buoyancy, though a double-digit earning growth would be surprising to me.
- Liquidity: India has benefitted from easy liquidity around the world in 2019. We should continue to benefit from easy money available around the globe in 2020 as well. A lot of funds should flow in emerging markets from developed markets.
To Sum it up: With the Geopolitical situation still remaining Fluid in the Middle East, Iran-US, Iraq Resolving to ouster the US, would make global & Indian markets Jittery for some time. Every Rise can be followed by some correction, till markets start ignoring it and take a cue from Budget 2020, govt. reforms & PM’s outreach to Industry.
Have a Very Successful 2020.