The Houthi militant attack that has led to sea trade diverted away from the Suez canal seems to have affected shipping companies most. The effect was visible in stock gains on major companies over the last week, especially when compared to gains posted in the last one year. Mohit Gang advises on how best to look at the crisis and the way forward for investers with respect to shipping stocks.
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The last time we spoke a couple of week weeks back you know it looked like we were in some sort of a goldilock sort of a situation uh the you know BJP had just won State elections in the Hindi speaking Heartland giving uh investors hope that there’ll be political
Continuity in India the numbers were great GDP numbers were stronger than expected and on the basis of that the markets staged a tremendous sort of a rally do you think these bullish factors are now prizing and you know what are some of the risk factors that you’re looking for stepping into
2024 yeah hi morning sues always a pleasure to be speaking with you look I think last time around when we spoke uh I think BJP just swept uh the largest Hindi Heartland elections in this country and which I think gave a confidence to the market that there
Might be a continued stability in the government its policies and everything and uh I think the central elections in 2024 would repeat the pattern and I think Mar markets have completely factored in that uh thing in the in the sudden rise which we saw uh to my mind
Honestly what is happening currently is I think markets are just about consolidating at these levels uh there isn’t uh we saw a small downt for last couple of days OD but wasn’t anything big to shock or jerk the market away uh mid and small caps saw some sharp
Correction though and I think some Pockets uh where the froth was quite visible I think took some amount of beating but uh all said I think markets have again recovered back yesterday um in the second half of the trade and today again in the morning uh but nothing substantial has to indicate that
The markets are again back with full Gusto uh my sense is markets will consolidate this is the end of the year when most of the FIS are going out on holidays some are kind of cutting on their positions and winding up their books and and uh booking their profits s
So my sense is this will these are low volume days uh where um sudden movements can actually change the prices but my sens is these last 5 seven days in the year are about consolidating major risks actually I think remains as we spoke last time which is oil prices and the
Global Supply roots and I think oil prices have remained where it is but Global Supply Roots have faced some disruptions uh o to the um uh the the disruptions by how these how the rebels in the Swiss Canal area and kind of uh blocking those passages so I think that
Remains to be seen as to how that pans out globally uh it’s it’s some bit of a worry because because because of the uh strategic importance of that entire area in the global supply chain system good morning moit talking about the militant attack by the hoi militants
I have a certain some amount of data on shipping companies now just for the audience what happens when uh shipping companies Charter rates go up on on three factors one is when there are attacks of this sort the other one is when Global oil prices uh change and the third one is dollar
Dollar has steadied Global oil prices have more or less steadied they are not that volatile so it is the militancy that is driving a change now we look at the five Companies shipping companies in the last one one week I will drive your attention to uh shipping Corporation of
India the one we return has been just 3.5% as against 50 almost 60% in the last one one year Sr shipping the last one week the returns have been just 4.2% as against 22.63% in the last one year same with GE uh uh shipping the other two companies
Because of some internal problems have had different to in the top five uh moit what do you make about the shipping SE sector and two is it a good time to come in into these stocks uh hi I think that’s a very part question and I think something which is
Playing out in the minds of the market uh uh right now to be very honest it is one sector which is catching all the fancy and attraction of all the market Traders U as we speak and I think the reasons which you highlighted are are probably out there you’ve correctly
Brought out the reasons which will lead to Charter price increases in the in uh increases right and I think a rebel attack um I think perhaps it’s to do with the Strategic importance of the SS Canal itself it it covers almost onethird of world’s global passes
Through that Canal 34% all and even when it comes to oil tankers or even when it comes to um let’s say metal uh uh I think around 8% of Worlds oil passes through that and around 5% of Worlds metal passes through that so the importance can’t be undermined in any
Sense and if uh ships have to Ferry along the Cape of Good Hope which is the longest route through South Africa and all it will increase number of days it will increase Insurance costs it will increase it will create delays in the um uh Global Supply it will lead to perhaps
Some bit of inflation in some economies of the world and so on and so forth so the implications are far and wide but I think one sector which imminently benefits from this or maybe perhaps two sectors which imminently benefits from this are the shipping companies and the
Insurance companies uh uh to my mind I think shipping is the biggest beneficiary because uh there is no uh extra fixed cost deployment or there’s no extra Capital deployment per se some amount of variable cost uh perhaps because of the longest routes and everything uh gets taken into account
But otherwise the charter price increases directly uh uh leads to the uh the the pnls of these uh shipping companies and that’s what Market is excited about to be very honest the longer this delay or the longer this blockade continues which to my mind isn’t looking likely to be sorted in um
In coming days or imminent days uh so my sense is uh yes uh this could uh this could create a long uh time frame where we can see super normal returns coming from all the shipping companies going forward so to me the sector is looking extremely extremely attractive right now
From a short-term trade perspective we are quite bullish on this uh moit just carrying on on that there is one more report report that has come out from chrysle which has projected a revenue drop in shipping companies of 5 to 7% but this is as against in the next year
Next fiscal but this is as against a revenue a steeper fall that has already happened this year of 23.25% do you still hold on to what you had uh what you had recommended as far as the shipping shipping sector is concerned look Amit I think my prognosis
Is more basis uh the short-term uh situation which is arising out this is an a special situation kind of an event where uh uh uh a particular uh major Global passage route has got impacted because of uh whatever terrorist attacks or so on and so forth right so I think
In a short-term trade from from a short-term trade perspective this is looking extremely attractive because as I said the chter price increase will directly uh yield into the pnls of these companies so the impact is fairly fairly direct uh without having a substantial impact on the cost side or on the
Balance sheet side of the of the companies and hence I think this is what Market is um uh factoring in and the longer the situation uh stays out my my sense is look this is now once done this is almost done for like a couple of months or a quarter at least because
It’s very difficult for these kind of escalations to ease off pretty soon right so uh I think from that perspective also it looks very attractive from a from attractive trade from a quarter or a half early perspective now moit as you rightly pointed out uh this crisis has
Implications on both oil and global trade if this crisis persists if it extends what could be the potential impact for us in uh India look I think India gets impacted only if there is a major escalation on the oil prices right and oil prices have have been uh tapered of has tapered off
Off late uh my sense is anything below $80 $85 on the Brent is is fairly okay with India anything where Oil crosses 90 I think starts hurting us around 100 it pinches us very very bad I think till us time that it is above 90 level we don’t
Have to really worry about the the oil economics playing out there but yes we always have to keep one eye on the oil I think because which is which will and which continues to remain the biggest determinant of uh of Indian markets all right and uh before we let you go moit I
Wanted to ask you about the client uh mindset after this sharp runup that we have seen you know what are they thinking are most of them looking at this Market as an opportunity to build a perhaps a long-term portfolio something they’ll hold for the next 5 to 10 year
Let’s say or are they getting increasingly jittery given the kind of wild movements we have seen this week look Su I have always maintained and we have been uh out there in the public with one statement of ours for last whatever 6 months or a year or so
That the cost of staying out of the out of this Market is extremely high uh rather than cost of staying in and facing a correction if there is any likely we haven’t seen a substantial correction for almost like 6 n months in this market now uh and uh a very big
Sharp correction still looks highly unlikely unless all the risk factors which we have spoken about plays out to our detriment uh so our continuous advice and recommendation to our clients has been that stay put with your asset allocations don’t overdo markets are absolutely expensive but uh given the
Kind of momentum which we are seeing given the kind of domestic flows which are there given the kind of new money which will enter in the Indian markets come January right we have already heard news of some us Pension funds entering uh indices where India will be a part of
Their Global allocations and then come June we will have Bond inclusions in the JP Morgan Bond index so on and so forth so there’s a lot of money waiting on to end and enter Indian markets and I think all this will have positive imp impa the bond money which comes in will perhaps
Easen off our eels even if the rates don’t come out and the eels easing will lead to a huge credit boost in the economy and once the elections are done and passed we perhaps could see a Revival in the uh the credit cycle by the private companies also till now
We’ve only only been witnessing a public uh uh expenditure kind of a scenario which government has been doing in this country but once the private companies participate I think it will be a tremendous show so my sense is people have to stay invested someone who’s still not entered in my uh
Recommendation is to enter as soon as possible any delay is perhaps hurting the investors a lot but yeah take calculated uh calls you can’t jump in with all your Capital right now uh I think and markets will give you those pockets of opportunity to enter in at right times and right spaces