Sunday, October 15, 2023

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Sagar Lele, Founder of Rupeeting. He also manages the All-Weather portfolios.

How Far Should India Worry about Rate Hikes in the US? 😖

All events last week further solidified the idea of more rate hikes in the US.

1. The Israel-Palestine conflict

   Hamas fired thousands of rockets at Israel and entered the country in a surprise attack. This was replied to by Israeli counter-strikes. The result was a blown up conflict, which also killed several hundred people across both sides.

   Any conflict or war-like situation tends to spook the markets immediately, and resulted in renewed fears of supply chain disruptions, and resultant potential inflation.

2. Rising oil prices

   The conflict also boosted already-rising oil prices. Oil prices have been on the rise over the last few weeks, led by more strength in the global economy than rate hikes would ideally deem, the potential rise of India and continued supply crunches by oil producing majors.

   Additionally, under investment in the oil sector has been resulting in structural supply pressures as infrastructure inefficiencies rise.

3. Inflation’s red hot

   Consumer price data in the US further spooked investors. While the CPI in September was steady at 3.7% (still far above Fed’s target of 2%), core came in hotter than expected at 4.1%.

   This would give more reason for the Fed to hike rates further through the year, in line with comments by some Fed officials, and indications gathered from the Fed meeting minutes.

Wait, why should you care about this in India? Several reasons:

• Any hikes in the US would result in renewed fears of an economic slowdown, which would impact India, although to a limited extent
• Higher oil prices and inflation are a global problem, not just exclusive to the US. India’s dependence on imports for oil makes the situation worrying for India
• Rate hikes across the world put some pressure on rate hikes in India too, to maintain relative yields on debt

However, all the above problems would have been a much larger problem for India 5 years ago. Given India’s structural growth factors, attractiveness at a global stage given relative growth outperformance, and thanks to cheap Russian crude, India’s much less prone to damage from externalities at this point.

Although the markets have the potential to exhibit weakness in the near-term owing to these uncertainties, the mid-long term continues to look promising.

Idea - Bharat Dynamics 🚀

Unless you live under a rock, you probably know a little something about the Israel-Palestine conflict that has come back into the limelight, but let’s draw attention to something specific - Israel’s Iron Dome, one of the most sophisticated defence systems straight out of an Iron Man movie, protecting the region since 2011. It detects threats using radar and blows them into oblivion with Surface-to-Air Missiles.

Various countries have their own versions of these missile-based defence mechanisms, and so does India, being one of the few countries in the world to have an intercontinental ballistic missile (basically, it can travel more than 5,000 km) called Agni and developing the world’s fastest supersonic cruise missile called BrahMos.

If you’re like us, you’d like to make money off anything, including the all-important missile market, and the company of choice? Bharat Dynamics, the missile maker for the Indian Armed Forces, creating some cool products that have been India-first!