Crude decline is an unmitigated positive for India, says Arvind Sanger of Geosphere Capital

Oil prices have plunged to their lowest levels in more than a year on growing worries of oversupply and ahead of a much-anticipated Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna on December 6.

Arvind Sanger, managing partner of Geosphere Capital Management and James Glassman, senior economist of JPMorgan, spoke to CNBC-TV18 about the developments in oil markets and what that means for India.

“I think the crude oil fall is an unalloyed benefit for India. The growth scare is somewhat temporary and minor and what we had as the US dollar went up and oil prices went up sharply, you saw some slowdown in demand. I think the sharp correction of 30 percent in oil prices over the last five-six weeks has completely negated that growth concern in my opinion. Yes, there is some moderate slowdown in economic growth out of Germany, China, we have seen some signs even in the US but those are very modest and they are not - by any chance – recessionary,” said Sanger.

Talking about how India is benefiting from falling crude oil prices, Sanger said, “I think the scare that Indian market has got both on the currency and on the current account deficit (CAD) on every other growth front, oil was a big component of that and I think that receding certainly provides a tailwind for the Indian market. You have some negatives still there, you have the domestic financial conditions tightening because of non-banking financial companies (NBFCs), financial institutions and you have elections which are coming up in the next few weeks - the state elections and the national elections coming up by the next May. So I think those headwinds remain but I think the major economic headwind from overseas which was both the currency and the oil hit that certainly has receded and therefore it does make India a little more interesting although its own growth challenges need to be solved but some investors might be willing to look through near-term and into FY20 and feel a little better about the growth outlook in current oil prices at the moment."

With regards to how the OPEC may try to stabilise crude prices going ahead, Glassman said, “Crude fall is helpful for India and it is helpful for all the consuming part of the world. Of course, it is not such good news for producers but I don’t know – it seems a little exaggerated to me and I don’t know exactly what the dynamic is. It wasn’t but a few weeks ago when everyone thought that it was going to USD 100 per barrel. So I personally think, maybe it has gone a little overboard, and so I think OPEC probably is going to be making some kind of efforts to try to stabilise things but this is helpful for now.”

“To me the good news for the global outlook – there have been some disappointments in Europe, there has been a lot of uncertainty caused by all these trade tension between China and the US, I think there is a chance that the upcoming meeting may try to defuse some of those tension but for all of us, the constructive backdrop is the inflation trends or nothing but they don’t call for aggressive tightening by central banks. To me, if inflation remains benign, that is a pretty good backdrop for emerging markets (EMs), for the developed economies,” he added.