We are going to try and share with you our views, opinions and actions regarding various economic and financial aspects across the world in managing your wealth through this letter. Currently, Central Banks, Governments, Private businesses, and Consumers have their own challenges and tailwinds in their contribution to the economy.
Will the Federal Reserve lead other central banks?
The most recent federal reserve meeting has demonstrated the shift in their thought process to change the course of interest rates and liquidity. To put in simple words, the accessibility to low-cost capital is going to become scarce. No other central bank including the RBI has changed their stance when it comes to interest rates and liquidity in their respective economies. We strongly believe that these low levels of interest rates are neither sustainable nor advisable if inflation is not controlled properly.
We support the accommodative stance the RBI has been following since the last few quarters which doesn’t rule out raising interest rates to control inflation if needed. Indian bonds getting added to global bond indices is going to be a very positive tailwind for us as investors in this low yielding environment.
Is there a new global commodity super cycle?
Steel, Oil, Coal, Natural Gas, Copper and many more mineral and non mineral commodities have reached multi year highs in terms of price and demand which have driven many private companies for aggressive capital expenditure. We definitely believe that the demand is going to be sustainable on a global level even if Chinese consumption weakens with support from American and European economies. We are still not completely confident about a super cycle in the prices of these commodities as rapid capital expenditure will eventually fill the gap between demand and supply.
We are very confident that the next few years are going to move us more towards green energy consumption. Commodities used for solar and other green energy sources will experience a great increase in demand. Infrastructure spending initiatives by the USA and Europe will most probably fill the decrease in Chinese demand. We are trying to concentrate on companies and sectors that can dictate or pass through the rapid increases in commodity prices to be a part of your portfolio rather than companies or sectors that have to compromise.
What do we think of the future?
India as an economy is one of the biggest beneficiaries of this pandemic where we have seen technological advancements, pharmaceutical breakthroughs, increase in industrial expansion, becoming a global alternative to China in many sectors etc. in the past six quarters. We strongly believe that India is going to continue this momentum for the next five to ten years in building and reinventing the economy in a holistic manner. Better government regulations, laws, increased appetite for ESG aspects of the economy, rapid adoption of digital financial tools, and financial inclusion are some of the many tailwinds we expect to experience going forward.
We strongly believe Indian capital markets are going to experience a lot of love not only from domestic investors that are rapidly growing in number but also from foreign investors due to the positioning of our economy relative to other markets.
We expect Indian businesses and India as an economy is going to evolve as a consumer as well as a manufacturer driving the wealth of the country higher. We feel the major key, or the X factor is going to be the search for stability in the form of governments, regulations, policies and laws in our country which plays a significant role in our investment decision making. Our major driving force in taking investment decisions are all the factors that we have discussed in this letter accompanied with our discipline and fundamental approach towards investment research.