Why Motilal Oswal’s Raamdeo Agrawal is angry with Donald Trump3 min read . Updated: 25 Jul 2018, 02:17 PM IST
Raamdeo Agrawal says he's part of the collateral damage from Donald Trump's pronouncements on Twitter, but not those about trade
Over in Mumbai, a stock picker who built his firm into a multibillion dollar financial giant has one thing on his mind: Donald Trump tweets. Raamdeo Agrawal says he’s part of the collateral damage from the US president’s pronouncements on Twitter, but not those about trade. No, what’s annoying the 62-year-old joint managing director of Motilal Oswal Financial Services Ltd—and hurting his investments—is something completely different: Trump’s renewed hostility toward Iran, his entreaties to Opec countries, and his general impact on the price of crude.
“We are 70% to 80% dependent on oil imports and Mr. Trump is not helping," Agrawal said in an interview in the firm’s high-rise in a fast-growing business district in central Mumbai. “Every day he tweets one way or the other."
Trump cancelled a nuclear deal with Iran in May and has been pressing allies to end all imports of Iranian oil by a November deadline. That sent the price of Brent crude surging to about $80 a barrel on expectations for reduced supply. Then, the US president started using means including Twitter to mount pressure on oil-exporting countries to reduce prices by increasing output.
Only this week, Brent crude jumped—and then retreated—after Trump took to Twitter to threaten Iranian President Hassan Rouhani.
Iran produces 3.8 million barrels of crude a day with China and India as its main export markets. Countries such as India have to choose between angering Trump by ignoring US demands not to buy Iranian oil or giving up the savings on shipping costs and long credit periods that it got on the $9 billion of crude it bought from the Islamic republic in the year ended March.
In Agrawal’s view, oil could surge to as much as $100 a barrel if the US succeeds in bringing Iranian exports to zero. “I think it is not going to happen and it is only posturing," he added.
What’s not in doubt is the impact a higher crude price has on India’s economy and markets. India is the world’s fastest-growing oil user, with about three-quarters of its crude coming from overseas. The country imports some 220.4 million tons annually.
Higher crude prices stoke inflation, and as the central bank is mandated to keep retail prices in a band, interest rates rise, which weighs on economic growth.
A spike in oil also weakens the rupee, which causes global funds to sell off Indian assets. It’s a vicious cycle: that further depreciates the currency, sending the price of crude higher in rupee terms. The Indian currency hit a new low of 69.1275 per dollar on Friday. Many analysts expect it to fall past 70.
Then there’s the $2.1 trillion stock market, and the impact on specific sectors such as oil refining, which is Agrawal’s primary concern.
Trump isn’t worried “about prices of oil refining companies in India, but I do care about them as I have a 10% allocation to them in my portfolio," he said.
Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL) have each tumbled at least 20% this year as the government is said to have asked state-run refiners to hold fuel prices amid rising crude costs.
Agrawal began his career as a sub-broker on the Bombay Stock Exchange in 1987, crowding inside a hall and shouting orders under the open outcry system. He worked with partner Motilal Oswal to build a $1.7 billion company whose shares have returned an average 17% annually since going public in 2007. Motilal Oswal’s asset management arm, which focuses on value investing targeting small and mid-cap stocks, oversees about $5 billion.
India’s benchmark stock index has risen 8% so far this year, surpassing a previous all-time high reached in January, for one of the best performances among major Asian countries. But the rally is being driven by fewer stocks, with only about half the 30 Sensex companies trading above their 200-day moving average price.
While Agrawal remains a long-term bull on Indian equities, he says he doesn’t try to time the market, and he wouldn’t be surprised if it’s buffeted by outside forces, including the US president.
“I don’t know how many more tweets are yet to come," he said of Trump. “Every day he wants some new excitement."
Bloomberg’s Saket Sundria of contributed to this story.