Brace for Impact

Brent at $93. Hormuz shut. INR at 92. For the first time in four years, I do not have enough conviction to double down.

At the outset, please note I am not bearish on India and not a day goes by when I always maintain - today is a good day to invest.

It is upon us as fund managers, we need to find the best idea given the capital availability and the day of availability.

Over the last 56 hours, I have been doing one thing and one thing only: deliberating on whether this is the time to double down or the time to pull all chips off the table.

If you have interacted with me at any point in the last four years and asked, “Is it a good time to invest?”, my answer has always been the same: any day is a good day to invest.

Today, for the first time, I am unable to say that with conviction.

This is not because I have turned bearish. It is because the macro environment, for the first time in my career as a fund manager, is not giving me enough confidence to deploy fresh capital while markets are falling.

What Has Changed

1. Crude Oil: India’s Achilles Heel

The way news-flow is developing, Brent Crude appears headed toward triple digits. It closed Friday at $92.69, up nearly 28% in a single week, the largest weekly gain for the contract since April 2020. The Strait of Hormuz, through which roughly 20% of global oil supply transits, is at a near-total standstill. Iraq has shut 1.5 million barrels per day of production. Kuwait is running out of storage.

This is extremely bad news for India, no matter who says what.

Yes, we have more forex reserves to cushion the blow.

Yes, the government might reduce excise duties on fuel.

Yes, our oil dependency has reduced at the margin.

But make no mistake: crude oil is still the single largest item on our import bill. And the rupee at 92 against the dollar is not helping. The transmission chain is well understood: higher crude leads to a wider current account deficit, which pressures the rupee, which feeds imported inflation, which constrains the RBI, which raises borrowing costs, which slows capex. This cycle has played out before. It will play out again.

2. AI Disruption: The Earnings Risk Nobody Is Pricing

I have spent considerable time over the past few months working with the latest AI models. The reality is that these models now hold the capacity to make a significant portion of knowledge-economy jobs redundant. This is not a five-year story anymore. The capabilities are here, today.

Sure, India will find its way.

Sure, we are entrepreneurial.

Sure, alternatives will emerge.

But the problem is that multiples de-rate first; the reasons come later.

That is what worries me as I write this.

What I Expect?

I am expecting a significant gap-down when markets open at 9:15 AM on Monday. GIFT Nifty is already indicating a 270+ point decline. Hopefully, a buyer emerges later. Hopefully, things stabilise.

Notice that I have used the word “hopefully” twice. That is not how I typically operate.

I am not going to sing the song that everyone sings at times like these: buy the dip, go all-in, we are investing for the long term, etc. That is the comfortable thing to say,

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A Note on Conviction

You might be wondering why is this company down 20% - 30% when it has nothing to do with middle east, trade deal or forex. Their fundamentals have not deteriorated. Companies are reporting robust earnings, future outlook looks great. But why? Why are things turning?

Fundamentals are not detoriating.

But if there is a fire in the building, our lockers, no matter how safe and secure, will feel the heat.

The war in the Gulf is that fire. And the heat will be visible on your screens starting 9:15 AM today.

Stay safe. Stay liquid.

What to do?

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Disclaimer: Neither Saket Mehrotra nor Beta to Alpha is a SEBI registered investment advisor. Views are my own and do not represent my previous or current employer. Any mention of stocks and securities is not a recommendation to buy/sell. Please do your own due diligence before investing. The author may own shares in the Companies discussed and may sell it without prior notice.