Oil, The Dollar and The Rupee
Rising oil and dollar mean only one thing for the Indian economy – trouble in the near-term. Business fortunes and purchasing power are closely intertwined with oil and the dollar. Inflation could rear its ugly head if both oil and dollar become difficult to manage for the government.
Stock markets are clearly underprepared for a shock on the macro front. The belief that these trends will recede and macros will stabilize is more wishful than objective. Rupee bulls hope for swift government intervention in the form of NRI deposit schemes or bond issuances. Meanwhile, exporters pray for an even weaker rupee. The reality probably lies somewhere in between. Further currency depreciation will create a sharp policy response in the form of stabilization moves.
The coming weeks look choppy and need to be navigated with caution. Choppy times could throw up interesting opportunities. With weakening macros, debt presents a more compelling case. Astute investors must be sensitive to opportunities and swiftly capitalise upon them. Debt books should be built in a measured and staggered manner. Equities will need to be played selectively with caution. The consequences of high oil, a weak rupee, and high inflation on businesses must be factored into decisions.