Emissions from an oil refinery are reflected in a street puddle at dusk in Texas City, Texas, U.S. (Photographer: Luke Sharrett/Bloomberg)  

Oil, Dollar Combo Sends $141 Billion Manager to Indian Hedges

(Bloomberg) -- Forget about the Karnataka election. Rising oil prices and a strong U.S. dollar is what’s threatening the rebound in Indian stocks.

That’s the message from AMP Capital Investors Ltd.’s Nader Naeimi, whose Dynamic Markets Fund ranks among the year’s top performers. He says the pace of gains in oil prices alone is enough to put importers of the commodity at risk. Add to that a stronger dollar, and Indian equities become the most vulnerable in the region, in his view.

Oil, Dollar Combo Sends $141 Billion Manager to Indian Hedges

His latest call: buy put options hedging against a 10 percent drop or more in Indian benchmark gauges. The S&P BSE Sensex Index rebounded about 9 percent from a low in March through a three-month high on Monday, before halting its rise amid inconclusive elections in the southern state of Karnataka.

“India is a high-reward short in my view, or an excellent candidate for tail hedging the macro risk around the combo of rising U.S. dollar and oil,” said Naeimi, who helps oversee A$188 billion ($141 billion) in assets from Sydney. “The inflation picture is about to get worse, and yet the Indian share market is at cycle highs.”

Rising oil prices helped widen India’s trade deficit in April, while consumer prices accelerated more than expected. The rupee sitting at a 15-month low against the dollar may drive up import costs further, making the world’s third-biggest oil consumer even more vulnerable to rising U.S. rates.

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