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Sunday, March 13, 2016

Sailing An Unsettled Ocean of Global Woes - II(Mini World War - 3)

When Warren Buffett bought a stake in China Petro,circa 2002 for $ 500 mn and selling it at a $3.5 bn profit in 2007 although he thought it was still undervalued,we all thought of a momentum in energy prices was round the corner.

Recently he has again made an investment in pipeline operator Kinder Morgan,though share prices have fallen since,it is interesting to note that his investments in Petro China and Burlington Northern Railroad were made when prices were depressed(as they are today) whereas his loss making investment in ConocoPhillips was made in 2008,era of high crude prices($120 then).

Offcourse it is stupid to judge as Mr Buffett buys value and stable cash flows,long term et all.Maybe I am just trying to find arguments to buttress my theory that average crude prices in the next Two years would be around $60 with many spikes and troughs!!

Having said that its very clear that the major risk to markets right now is not China but the MIDDLE EAST that is succumbing each day to the most virulent form of religious fanatisism that is already becoming a mini Third World War.The shia-sunni fight that has drawn in Turkey,Saudi Arabia,Iran,Iraq,Syria and the usual suspect - Russia,USA threatens the entire axis from Africa to Asia including Europe.
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Scenes of a shelled Damascus with windowless gutted buildings standing like skeletons,a chemical attack by ISIS in Kirkuk,suicide bombers in Ankara,blasts in Medina all point to a situation fast going out of control.The migration crisis will only get worse.

The defence sector in India will be a bright spot as will armament suppliers in US,some banks that have managed their balance sheets as well.

Will Indian markets hold their recent lows.It is difficult to say with new developments in the Middleeast as well as China.Domestic exports are down 14% and industrial growth nothing to write home about.Going ahead we will see huge volatility and trading will be akin to treading on ice.Good businesses will flourish and overvalued ones will stutter.

I have always felt that the buzz created by PEs who invested in the local e-commerce players was overhyped and the drastic cut in valuations by JP Morgan on the likes of Flipkart is only just the begining . It is too early to write an epitaph for brick and mortar stores and 2017 will definitely see a resurgence in their sales growth.

My reccomendeations - Reliance industries and Larsen&Toubro(L&T) have done well and I expect more robust numbers and an incremental increase in share prices.

Let us wait and watch the unfolding war and the Trump bid.....!!