Trade War, Recession Fears And China Stimulus To Impact Commodities, Says Rakesh Arora
Capacity expansion to impact premiums of domestic steel industry, says Rakesh Arora.
The uncertainty around the ongoing trade war between China and the U.S., risk of a recession and expectations of a Chinese stimulus will impact the commodity industry in India, according to long-time industry watcher Rakesh Arora.
“While stocks have corrected and are starting to look attractive, there seems to be no real hurry to buy into this weakness at least as of now,” Arora, managing partner at Go India Advisors, told BloombergQuint. He expects more downside to metal stocks in case of an economic slowdown. All eyes are now on the Chinese New Year, after which the country would announce the stimulus package that could reduce the impact of any upcoming global crisis, he said.
“Since last year, the demand has started to dwindle largely from China and that is likely to spread to the U.S,” he said. “The demand-supply scenario is not so favorable anymore.”
Arora estimates a huge capacity expansion in India’s steel market in the next three to four years. This, he said, would impact domestic premiums. He suggests buying companies that are not heavily focused on commodities for their earnings and the ones not highly leveraged.
“There is still a certain probability that [the] world can go into recession and those companies will be under high duress. We need to be really watchful.”
Other Highlights
- U.S.-China settlement on trade war can help fuel the metal market.
- There is a potential for a rebound.
- Cannot differentiate between which commodity would fare well in a slowdown situation.
- Aluminium slightly better placed than steel.
- Calls it a trading opportunity but not a buy or hold strategy for commodity stocks.
Watch the full interview here: