The financial condition is tightening, crude is getting supply side shocks and that is not a good setup for any macro thesis for risk. Which is why for five-six months, I have been of the view that people should dial down, more specifically on small and midcaps.
But right now, we are in a shock set up which is generally transitioning from reflationary cycle to mid cycle. The shock is that suddenly crude is deviating dramatically from its trend line. Now we have been served a $60-70 billion bill by the rest of the world in the form of higher crude prices, higher fertiliser prices, coal prices and so on and so forth. Who is going to foot the bill of this $60-65 billion? One of the balance sheets of course.
Either it is going to be government and if that is so, then it is almost about 1.5 odd percent of GDP. How is the government going to fund this? By borrowing more? Of course, bond markets are not going to like it. So, if you borrow more, then you would have much higher interest rates,
Perhaps what most likely the government would do is run down on its capex budgets. So, are you prepared for this after the very good Budget that we celebrated? Most probably that will not happen given the context that we are in. Alternatively this $60 billion worth of bill can be funded by other balance sheets which are households or corporates.
