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Last Updated : Apr 13, 2015 04:38 PM IST | Source: CNBC-TV18

Yemen woe short-term, may not impact oil price: Crossbridge

Manish Singh of Crossbridge Capital does not see Greece exiting from troika in the near-term. He expects Nifty to be around 10,000 by year-end.


It's been a rough week for India's equity markets with the frontline indices losing almost 4 percent. The trouble in Yemen, the unresolved Greek crisis and continuing Fed chatter on a rate hike have added to the volatility.

Oil prices fell in Asia on Friday, cutting short a rally as investors weighed the potential for disruptions in Middle East supplies caused by the Yemen crisis and a global crude glut. Brent crude was trading around USD 58.23 per barrel at 15:30 hrs.  


Speaking to CNBC-TV18, Manish Singh of Crossbridge Capital said the Yemen issue is only for short-term and is unlikely to have too much impact on the oil prices. He does not see Greece exiting from troika in the near-term.


Singh expects Nifty to be around 10,000 by year-end. According to him, even if the US Federal Reserve hikes interest rate, Indian market will correct only for a brief period and will rally thereafter.

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Dipen Sheth, head-Institutional Research, HDFC Securities said there is not much to worry about the market and investors must use the current correction to enter it. He remains bullish on equities and believes India story remains intact.


Marat Terterov of Brussels Energy Club also contributed to the discussion.


Below is the transcript of the discussion:


Q: How long do you expect this militant issue to persist if I can put it that way because it is having an impact on crude prices and equity markets across the world?


Terterov: The first message that your audience needs to consider is that there is a kind of strong debate as to whether geopolitics and geopolitical cataclysms or political instability in the countries in the Middle East and Ukraine have an impact on oil prices whether they actually send oil prices in an upward direction or whether oil prices are more dependent on market conditions. Global demand, demand in India and China and those kinds of trends.


While we are seeing the terrible situation in Yemen which would be ongoing for a good few years since the start of Arab spring and well before that, but while with Yemen crisis deepening we have seen Saudi’s sort of military intervention, President Hadi has been reported to have left the country to Saudi Arabia, I am not sure to what extent that is actually having an impact on oil prices.


While there has been a slight increase of about a dollar or so up to USD 58 per barrel in crude prices from yesterday, I still think it is more due to stronger than expected global demand.


According to reports, conditions are slightly more buoyant at global level. It is still more than market conditions that are having an impact on oil prices. Most forecasts for the month of April are suggesting that oil prices are going to be hovering between USD 55 and 60 per barrel and we are sort of USD 58 at the moment.


While the Yemen situation is worsening, while in Iraq we have a lot of unresolved issues with Islamic state, as a geopolitical analyst I am not sure to what degree geopolitics is actually impacting the oil price.


Q: A brief response on this worsening Shia-Sunni confrontation that we are seeing play out in Yemen. On the sideline, we are also seeing that big nuclear deal being attempted to be signed with Iran. What does this mean for Middle Eastern politics?


Terterov: I would use a quote here from very famous scholar of Middle East that future conflict in the Middle East, and he was writing about four years ago, will be on the basis of the Suni-Shia crucible. I think he has a good point because Sunni-Shia basis for sectarian conflict has been present since long in the Middle East.


We have seen this in Lebanon in 1970s. In 80s we have seen this in Pakistan, if you look at the wider Muslim world and we have certainly seen a massive resurgence of sectarian conflict since the topple of Saddam Hussein's regime in Iraq in 2003.


Yemen, at the moment, is an interesting case for analysts as difficult as it is for the country itself because the Houthi rebels are in essence Shiites, are fighters. They prescribe to this sect in Islam. There is strong information out there suggesting that this is something that is in the favour of Iran and its regional policy.


Iran now has a very strong geopolitical stand-off with Saudi Arabia and the gulf countries. They cooperate within the OPEC oil cartel – Iran is a member, Saudi is the leader of OPEC along with the GCC states.


There is active cooperation within the OPEC framework but at a kind of regional geopolitical level we are seeing a hugely heightening stand-off between Iran – very strong words coming from the Emirates, we have seen former President Ahmadinejad lay claim to islands in Persian Gulf.


Q: If conflict in the region had happened a few years ago it would have serious repercussions on global energy prices and global energy security. Are you saying that today that situation has changed and it is not so important?


Terterov: The sectarian conflict is boiling, it is heightening and it is certainly something that is giving the perception that geopolitics in the Gulf are very tensed and that there is strong threat of conflict and stability being undermined.


My earlier point which linked into these points is just the fact that I am not sure to what degree geopolitics actually sends up the oil prices. I still believe it is more about market conditions.


Q: If demand for oil is going up and that seems to be what several analysts have been telling us over the last 48 hours and that is underpinning the recent rise we are seeing in oil prices then is that a good news for the global economy?


Singh: Yes, that is good news. I have been listening to the conversation and it is not as much Yemen which has big impact on oil but the deal between P5+1 and Iran which is going to be more significant.


Q: Should it work as a depressant on oil price because that would mean more Iraqi supply would come into the market?


Singh: Absolutely, and then we are talking about this whole scenario of oil going down to USD 20-30, that could be realistic which means that the US rate rise may not happen for this whole year and that will be supportive of risk.


I believe this Yemen issue is more a short-term issue and unless you really have them blocking the Bab Al-Mandab strait and block the supply I don’t think that as a big impact.


Q: Would you say that India’s sell-off this week is mostly related with a big run up in the markets ahead of fundamentals catching up, that there seem to be no positive triggers as yet on the policy or earnings front and it is all about this and less about the global context that we have been discussing so far?


Sheth: We are finding excuses to discover weakness in the market and when you have more than one excuse, although they may not be very strong excuses, if a number of excuses come up then the general bullishness tend to crack.


Surely prices were running ahead a little bit of reality and that little bit added up to much more than a little bit over the period of time. So, I would think that we are taking our eyes off the ball here and getting unnecessarily jittery about Indian stock markets.


The two big things that are wrong with the Indian economy have both fallen into place, there is no reason for pessimism of any sort here. So, one big thing was the high oil prices which was burning fiscal and current account deficit holes into our system, so that took care of itself with lower oil prices.


The second thing was the poor quality of governance and these two headline things changing. So, one with the advent of the new government which is decidedly right of centre till date, two with lower oil prices both structural weaknesses in the Indian economy were getting addressed.

We were getting lucky din ahead of acche din but that debate will remain open for a while and if anything investors should use this weakness to enter markets if they haven’t done so already.


Q: Enter when because as you said prices had run ahead of themselves but now we are down by almost 8.5 percent from the top. So enter now? Because when you are in the midst of a correction it always seems ugly but if you step back how does it look?


Sheth: There is no magic here and trying to time the market perfectly is always something that is fraught with risk. Any weakness offers an opportunity to invest, maybe you shouldn’t put all your money on the table right now, if you haven’t done so already.



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First Published on Mar 27, 2015 03:29 pm
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