November 2015

Global Migration

In the last one year we have seen a sharp cut in crude prices as well as majority of commodity prices. As we speak prices continue to fall and are building pressure on asset markets globally. Most of the oil producing countries are under tremendous pressure to fire sale assets and meet liquidity requirements. Expectation of Fed rate hike has created further volatility in asset classes worldwide. Along with this we have also seen a sharp rise in value of USD against major currencies.

In this period of global uncertainties we have remain focused and are trying to take advantage of this volatility. In the last 6 years this is probably the weakest year of net FII flows. In this challenging time we focused on creating alpha for our investors. There are some global events which are making headlines and we feel it is necessary for us to give our key take aways –

• Dollar is currently a consensus trade. In the last 15 months we have seen a sharp rise in dollar while US stock markets are hinting at some level of overvaluations. At 1.30 times market cap to GDP, US markets are moving towards overvalued zone. Current savings in oil will help US market to sustain valuations but dollar will surprise everyone by decline in value.

• $100 billion plus saving in India on oil and commodities import bill has potential to double profits of corporates in next 2-3 years. Most of the savings will percolate into corporate profits in time to come. Also fall in oil prices will lead to household savings improving. We are already witnessing early signs where all FII supply is getting absorbed by domestic investors. India is already showing strength by being amongst the few best performing major currencies in the world after USD.

• Globally we have seen limited supply in equities in last 8 years which strengthens our belief that equities will remain a constructive trade. In our opinion markets will start making new highs after global migration and change of hands.

Regards,

Vinod Jain