Coronavirus. Global rout. Falling oil. Rising bond yields and gold prices. Yes Bank saga. Fear of recession.
There are just too many reasons for the markets to fall the way it did today. Its like a bottomless pit and the pull of gravity has become so strong.
The oil imbroglio could not have come at a worst time. We are already at the cusp of falling global growth and now this politics of oil. The fall in oil prices has rattled the market – a fall to the 1991 Gulf war times was unexpected and on top of that, to hear that Goldman Sachs does not rule out $20/barrel has sent the markets into a tizzy.
On Friday, Russia refused to join the large production cut demanded by OPEC+ on account of the coronavirus which in turn is leading to a slowdown in global economy and falling oil demand. This refusal by Russia, for the first time in three years, broke the alliance between Saudi-led oil cartel and Russia to support prices. Russia said that propping up prices as the coronavirus ravaged energy demand would be a gift to the U.S. shale industry and it did not want to do that. Russia was also irked by the U.S.’s use of sanctions to prevent the completion of a pipeline linking Siberia’s gas fields with Germany, known as Nord Stream 2. Last but not the least, the US also went with hammer and tongs after Russia’s ally, Venezuela’s business with Rosneft. So for Russia, not agreeing for a production cut in the OPEC+ meet was about making a point to the USA, trying to maim its shale gas industry.
Saudi retaliated by slashing its export oil prices thus starting a price war aimed at Russia but the impact could be devastating for Venezuela, Iran and even the American oil companies.
Many say that this price war could be temporary as for Saudi itself, it becomes a self-goal given the fact that it is an oil-driven economy. Oil experts say that price cut by Saudi could be a negotiating chess game and maybe the two will reach a compromise. But if they decide to prolong it, then oil could tumble down to the lowest levels in 5 years.
Well, the rest of the world is caught in this whirlpool of geopolitics. For a country like India, which imports over 70% of its oil, the falling price is good news. But psychologically, a falling oil price conveys the ill-health of the global economy, a slowdown.
Thus for India, the outbreak of the coronavirus and the crashing global markets is reason enough but the collapse of Yes Bank and detection of a fraud once again has shaken the very foundation of trust on the entire banking system and the Govt. Fear factor and loss of trust together have pushed the markets to these new lows.
In such a falling market, keeping the hope alive that the virus will disappear as the heat increases will help calm nerves, it’s a good time to accumulate some quality stocks, in a staggered manner; the markets could fall more – it will remain weak till the virus goes or we find a cure.
Stacking up stocks like HDFC Bank, HDFC, Asian Paints, Century Textiles, Biocon, SBI, ICICI Bank, Godrej Consumer, RIL, Polycab, GSK Consumer, HUL is a good antidote.
We go to bed every night, without any assurance of being alive the next morning; yet we set the morning alarm … that’s hope.
Similarly, lets hope this virus will disappear and life will return to normal – on that hope use this crash to buy quality stocks.