Amid rising yields, higher-for-longer interest rates, and adamant inflation, equity markets are now staring at another devil - Israel-Hamas war. While this makes the case stronger for a flight away from stocks, Prashant Khemka of WhiteOak Capital Management said he is in 'wait and watch mode'.
Edited excerpts:
What’s your first reaction to the Israel situation in terms of economic and market impact?
If the war remains confined to Gaza then the repercussions for the Indian markets for that matter global equity markets will be limited. But if the war becomes broader, we will have to see how it will impact our economy and markets. Oil will remain in focus of course. We can’t take a call on the market now based on the news so far. We need to wait and watch.
For markets, clouds have been gathered, otherwise too, we see higher yields both in India and the US...
Other economic global factors have been in the conversation for a while now. It’s not new. US jobs report is stronger than expected. Unemployment remains low. These are signs of a stronger US economy. This shows growth has been strong despite elevated rates. Fears of recession have not played out. The flip side is that inflation will take longer to come back to desired level, which means rates will have to stay elevated for longer. I don’t think this makes a different materially to the number of hikes from here on. Overall, stronger economic growth, as opposed to a weaker growth or recession; inflation taking longer to moderate; and rates staying elevated for longer is a better combination than a recession which will destroy demand.
Also Read: Israel-Hamas conflict: Technical analysts on the key levels to watch out for
However perverse this is, does this throw any opportunity to invest for stock market investors?
Markets are very efficient. They won’t allow any opportunity to make money. Your best case can only be to manage risk better. One outcome of wars of course is higher defense spends. Otherwise, there is no upside really.
Do you think the case for Indian defence stocks gets stronger because of this?
Fundamentally, the case for indigenisation of defence is very strong. Yes, stock prices in some cases have run ahead of fundamentals. This war may not materially change the fundamentals of these stocks for us to take a call on these stocks based on this event.
Best and worst case?
Best case is that the war does not broaden. Worst case, is the opposite.
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