I Don't Worry About the Turmoil in the Global Markets and Neither Should You - The 5 Minute WrapUp by Equitymaster
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I Don't Worry About the Turmoil in the Global Markets and Neither Should You

Sep 7, 2018

Kunal Thanvi, Research analyst

Yes, there's turmoil in global markets.

Specifically, emerging markets are facing the heat.

  • Trade wars
  • Currency wars
  • Rising interest rates
  • Rising crude oil prices

After a stellar 2017, emerging markets are in a tricky situation. These factors are threatening many countries - Argentina, Brazil, Indonesia, South Africa, Turkey, Venezuela...

The strengthening US dollar, among other factors, has resulted in depreciation of currencies in emerging markets including India.

In fact, the rupee is at its life time low near 72.

This has made our markets volatile.

Currency Deprecation - Leading to Global Turmoil?

There are some extreme views out there. Some believe this situation can lead to a repeat of the 2008 crisis. I'm not part of this group.

In the case of Indian companies, crude oil is a major raw material for many of them. This is mostly imported. So, the rising price of crude and the falling rupee is likely to impact the margins of many Indian companies.

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So, how do we deal with this situation?

I believe, over the last few years, policies like GST, RERA, the bankruptcy code, NPA resolutions etc will bring about a structural change in the Indian economy.

The industrial pick up has just started to happen as seen in the latest GDP growth numbers.

India is well placed in the emerging market world.

But honestly, I am not much concerned about the global macro challenges.

Why?

I look at them as an opportunity.

Yes. I'm happy to see any correction because of global macro challenges. This will help me recommend quality stocks to my Smart Money Secrets subscribers.

As I recommend stocks for the long-term, I don't worry too much about the short-term.

In fact, I've already started meeting the managements of companies which I really like. These companies were trading at premium valuations in the market. Some of them have corrected recently. But I will recommend them only if there is a good margin of safety.

Sarvajeet and I are traveling again this month. We are meeting managements of three companies in three different sectors.

There is one thing in common about these managements - they don't meet analysts.

So, we are traveling to some remote places in south India to attend their annual general meetings.

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Here are the three candidates for this month's Smart Money Secrets recommendation...

#1: A Healthcare Company - This company has been in our radar for more than a year now. Even though it has corrected more than 50% from its peak, we were not able to recommend it. The management didn't agree to meet us. If all goes well, this can be first healthcare stock recommendation to subscribers.

#2: A Travel Company - This company is India's largest in the space it operates. It has developed a niche for itself and a competitive advantage by foraying into specific categories. The upside in the stock could be 100%. However, we need to meet the management before we recommend it to subscribers.

#3: A Branded Apparel Company - This company owns an emerging apparel brand. It has recently started changing the way it does business. The change will help it improve its business. We have met the management in the past and are excited to meet them again.

In Smart Money Secrets, my mission is to cut through the market noise and find good companies for subscribers in which our super investors have bought a stake.

The global market turmoil will not change that.

Chart of the Day

Talking about currency wars and the falling rupee, we did a small exercise to understand the impact of the weak rupee on the markets.

India is a net importer. This means if the rupee is weak, the cost of imports increases and value of the export decreases - resulting in a widening current account deficit.

High Imports + Weak Rupee = Widening Current Account Deficit.

A high current account deficit also impacts the government's spending power.

Also, companies which import raw material witness pressure on their margins and profitably.

So, this looks quite negative on the face of it. So, it's not surprising that markets get volatile when the currency depreciates.

Should You Be Worried About the Rising Dollar?

Look at Indian rupee against the dollar from 1990. It has deprecated at a compounded annual rate of 5%.

Yes, the dollar has been on a winning streak from the beginning.

And despite that... the BSE Sensex has returned 14% compounded annually since 1990.

Thus, the falling rupee can bring volatility to the market in the short-term. But in the long-term, our market should be fine.

This is exactly what I keep in mind when picking stocks for Smart Money Secrets subscribers. I cut out the noise of short-term disruptions and look at the long-term picture beyond.

Regards,

Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: Kunal Thanvi, editor of Smart Money Secrets, is the Sherlock Holmes of investing. He is on a mission to reveal the top picks of India's best investors to you. For clean, high quality stock recommendations that won't put your wealth at risk, subscribe to Kunal's Smart Money Secrets.

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