Market momentum is currently driven by beliefs that inflation is under control and interest rate cuts in the US might begin as early as the second quarter of next year. However, Arvind Sanger, Managing Partner at Geosphere Capital Management, cautions against unforeseen risks such as the situation in the Red Sea that could impact energy demand and prices, reigniting inflation.
Crude rallied last week as the escalation of the Red Sea attacks prompted shippers to divert vessels away from the major energy chokepoint. Houthi militants have been targeting merchant ships in a show of support of Hamas in its war with Israel. That has added pressure to global trade, with the Panama Canal — another key waterway for international shipping — severely disrupted by drought.
According to vessel-tracking data compiled by Bloomberg, there has been a drop of more than 40% this week versus the daily average over the previous three weeks in the number of tankers of crude oil and fuel carriers entering the southern end of the Red Sea.
West Texas Intermediate crude traded near $74 a barrel on December 22 and is likely set for a second weekly gain after notching a string of seven declines.
Regarding investment opportunities, Sanger is selective about Public Sector Undertakings (PSUs), preferring investments in private companies where management’s interests align with shareholder value. He acknowledges PSUs as potential short-term trades but has reservations about them as long-term investments. Sanger prefers only a couple of high-quality PSUs in the power sector, and sees State Bank of India (SBI) as an exception among major banks.
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Looking ahead to 2024, Sanger sees a generally positive outlook for the Indian but identified potential challenges like persistent inflation, fluctuations in foreign investment, and commodity price increases, particularly if China's economy rebounds.
Despite these risks, he views the fundamental story in India as strong, except for some softness in FMCG and rural demand.
Sanger remains optimistic about election spending boosting rural demand and doesn't see any major obstacles, though he anticipates pullbacks that could offer buying opportunities in high-quality companies.
For the entire interview, watch the accompanying video
(Edited by : Shweta Mungre)
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