FINGER CROSSED?

 FINGER CROSSED?

Economy, Markets and other macro and micro factors all are in such a situation where it is very difficult to predict which way things will go in near future.  There are a lot of factors which will govern where we are heading towards. 

OIL:

The oil prices have been hovering at multi year highs and if we consider dollar appreciation with local currency, the oil prices are somewhat at an all time high.  The prices are not likely to come down amid ongoing Russia Ukraine war and the situation has to become worse  with the rising dollar. The dollar has to remain high against major world currencies in the medium term as the US Central Bank  has indicated a multiple increase in interest rates unless the inflation comes down under their tolerance limit.  The weak economies such as African countries, Sri Lanka , Pakistan and Latin American countries are in vulnerable conditions which will negatively affect the global demand, in turn we might witness a slow down in the global economy. India is also likely to be affected though our economy has been growing at a decent pace. However, we cannot remain decoupled with the rest of the world and we may not see the growth which might have been estimated before the Russia -Ukraine war. 

INFLATION:  

Major economies of the world are terrifically feared with this word “INFLATION”.

All commodities  prices like Metal, Coal, Natural Gas, Oil and food stuffs are at almost all time highs. The type of inflation we have been facing has never been witnessed since the last forty years or so owing to which not only consumer spending are being affected but the Industrial demand has been affected as well. The experts fear that if the prices of major commodities do not come down, we might see one of the worst recession in future. 

MONETARY TIGHTENING:    

FED and central bank heads of all major economies are more worried about inflation and they are tightening the money supply to control inflation.  All are giving priority for controlling the inflation by increasing the finance cost and are least concerned regarding the growth.  The monetary tightening suppresses the demand which in turn brings the prices down.  However, the situation this time is somewhat different. The increase in prices of major commodities is mainly due to supply disruption and not due to high demand.  Firstly, most of the countries have been adopting carbon neutrality measures and are going green. The process of shifting towards sustainability takes time and owing to which there has been supply disruption. Secondly, we have been witnessing supply disruption due to the pandemic also to a major extent.  Although the world now is bailing out of  the worst pandemic situation. However, with a substantial increase in major commodities, many of the industries still are not in a position to run at optimal levels. Thirdly, the Russia-Ukraine war made the situation even worse.  As such the supply disruption is likely to remain for some more time and under the situation it is very difficult to predict how long the inflationary trend in major commodities will persist?

Where to invest?

Looking at the current situation, we might see a muted or even negative growth in the near future.  One cannot be surprised even if we witness another 10-15% correction over a period of time.  It is advisable to sit on cash and keep 50% in liquid or fixed yield instruments.  Say 10% can be invested in Gold as a safe haven. One can invest 10-15% in balanced funds through SIP. The remaining 20-30% funds still can be invested in equities in a staggered manner.  The advisable sectors are being mentioned below where one can invest in a staggered manner.

• IT
• Companies moving towards green energy like Reliance, Adani Power & Tata Motors, Tata Chemicals
• Consumer durable companies like Tata Consumers and Quick Service restaurants like Sapphire Food, Devyani, Jubilant & Burger king
• Cement
• Oil & Gas like: Oil India , ONGC , RIL

-Rajendra Jhanwar