July 2020. A. Risk of Second Wave | by Learn & Profit | Jul, 2020

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Learn & Profit

A. Risk of Second Wave

Even though, Covid-19 caused an unprecedented near-term economic contraction, an overwhelming policy response helped reduce the real economic damage. The stock market rallied across the world is unprecedented and scary. But just when things were seemingly gaining stability, the risk of second wave rose across many geographies.

In some ways, I liked BlackRock views on the same – “We have downgraded U.S. equities to neutral, amid risks of fading fiscal stimulus and election uncertainty and have turned cautious on emerging markets. We have upgraded European equities as we see them offering the most attractive exposure to a cyclical upswing”

In that context, EU markets may get more attention than India — Well, let’s see..

B. Indo- China Angle

June 2020 gave rise to a new uncertainty. But the way in which India has handled the crisis, it seems that this will not be a big issue; while it still remains a key factor till US elections.

Some points that I read in Macro Viewpoint blog that were assuring ..

Harvard’s Belfer report on India and Chinese Air Force:

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“…China’s J-10 fighter is technically comparable to India’s Mirage-2000, and that the Indian Su-30MKI is superior to all theater Chinese fighters, including the additional J-11 and Su-27 models. China hosts a total of around 101 4th-generation fighters in the theater, of which a proportion must be retained for Russian defense, while India has around 122 of its comparable models, solely directed at China.”

“… India’s military has been involved in a steady stream of battles since the country gained its independence in 1947; its a “bloodied” force. China‘s People’s Liberation Army, by contrast, has fought little since the 1970s, and remains untested in battle. India’s threat to use force, despite the risks, is thus more believable. The Indian public has an understanding of the risk and cost of military action. China hasn’t yet fully reshaped domestic acceptance of the use of force abroad, and for now, the Chinese government does not appear ready to make that transition.”

C. India Oil Story 2020 & Current Surplus

India, the world’s 3rd largest oil consumer, imports a lion’s share (approx. 85%) of its crude oil requirements. The recent plunge in oil prices due to a decline in demand has worked to India’s advantage. Oil imports, the largest component in the import bill, declined by 72% YoY, reaching USD 3.5 billion in May 2020. During this duration, India’s goods trade deficit narrowed down to a record low of USD 3.2 billion resulting in an overall trade surplus (goods plus services) of USD 4 billion.

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All so good. But will this tactical gain overrule India’s long term strategic goal to reduce Oil/Energy dependence? — These are the following aspects to monitor in the next few months:

  1. Electric vehicle Strategy
  2. Scale/Shifts Investment in Domestic Oil/Gas InvestmentsLook forward for interesting July 2020..

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Shailesh Naik

Shailesh Naik

Shailesh Naik keeps a close watch on Emerging Technologies, Social ventures, and believes in Value Investing.
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