Rising oil prices remain the primary risk to investors in Indian equities from the perspective of US dollar returns, said CLSA managing director, Christopher Wood, in his weekly note GREED & fear.
Brent crude futures hit the highest level since November 2014, touching $80 per barrel, as geopolitical fears induced supply concerns.
Renewed US sanctions on Iran that could seriously hamper the country's oil exports, along with involuntary output declines in big producers such as Venezuela, Mexico and Angola have contributed to the bounce in the price.
Led by Saudi Arabia, the Organisation of the Petroleum Exporting Countries and 10 of its partners including top producer Russia have cut their crude output by a joint 1.8 million barrels a day since January 2017.
Wood also highlighted the steep fall in mutual fund inflows as a threat to the Indian markets, apart from rising oil prices and a weakening rupee.
He further said that fiscal slippage --- higher-than- expected spending--- shouldn't be a matter of concern ahead of the general elections in 2019.
A second term for Prime Minister Modi
GREED & fear predicted a second term for the BJP at the centre, albeit with a lower margin in 2019.
Prime Minister Narendra Modi's campaigning skills, along with his push for policies that positively impact the common man would be the bedrock of his re-election, the newsletter said.
"Some of the positive consequences of his policies should by then be clear at the ground level after the initial dislocations caused by
demonetisation in November 2016 and the introduction of a goods and service tax (GST) last July," Wood said.
The newletter cited the government's push for complete electrification of the country as an example of the prime minister's policies.
“There will also be the inevitable pickup in more “populist” policies ahead of a general election. Modi also has a track record of targeting policies that appeal to women voters,” Wood said in the newsletter.He added the opposition parties would have to unite across the board to be able to take on the BJP in the 2019 elections, and pointed to the national party's recent success in the
Karnataka assembly polls as an example of its electoral strength.