PROJECT OVERVIEW

Global Conflict Premium & India's Macro Exposure

Thematic Research Project — Kotak Alternate Asset Managers Ltd  ·  Project window: 5 March – 15 April

1. The Problem We Were Solving

Kotak's brief asked for a thematic EM research framework that could convert macro signals into time-sensitive, risk-calibrated investment positioning for a trading-oriented allocator. The gap they highlighted: too much macro commentary, too little translation into trade-level conviction.

Our response was to build that translation layer end-to-end — from geopolitical inputs all the way down to stock pitches with scenario-weighted valuations.

2. The Theme We Picked

Rather than chasing a generic India theme (rate cycles, capex, credit expansion), we anchored the work in something more urgent and asymmetric: four active geopolitical conflicts simultaneously pricing risk into commodities, freight, and capital flows that India is structurally exposed to.

The four conflicts mapped:

  1. Russia–Ukraine — energy, fertilizer, grain corridors
  2. Iran–Israel / Strait of Hormuz — Brent, LNG, shipping insurance
  3. US–Venezuela — heavy crude supply, OPEC+ dynamics
  4. China tensions — rare earths, electronics supply chain, defense posture

Why this works as a theme: India imports ~85% of its crude, runs a structural CAD, and has an INR that is highly oil-elastic. Conflict premia transmit fast and asymmetrically across sectors.

3. How the Project Evolved (4 Phases)

Phase 1 — Conflict Input Layer: Mapped each conflict to the specific Indian macro transmission channels it touches: Brent, LNG, freight rates, fertilizer prices, defense procurement, rare earth availability.

Phase 2 — Macro Quantification: Attached empirically sourced coefficients to every transmission channel, not modeled estimates. For example: every $10/bbl in Brent → ~30 bps on CPI, ~25 bps on CAD/GDP, INR pressure of ~40–60 paise. OMC under-recovery sensitivity, GRM impact, and fiscal slippage paths were fully modeled. Sources: IMF Article IV 2024, RBI Monetary Policy Reports, ICRA, Canara Bank, PPAC.

Phase 3 — Sector & Earnings Sensitivity Scorecard: Ranked five sectors on growth sensitivity, margin risk, leverage exposure, and demand cyclicality:

  • Defense — structural beneficiary
  • Energy (Upstream + OMCs + Gas) — mixed, channel-dependent
  • FMCG — input cost and rural demand exposed
  • Chemicals — China+1 beneficiary, feedstock exposed
  • Trade & Logistics — freight rate and Red Sea reroute beneficiary

Phase 4 — Stock-Level Pitches: Full institutional pitches with composite scorecards, three-scenario probability-weighted valuations, EBITDA waterfall stress tests, and risk frameworks.

4. Stock Coverage

SectorNames CoveredTop Conviction
Energy — UpstreamONGC, Oil IndiaONGC ✓
Energy — OMCBPCLBPCL ✓
Energy — GasGAILGAIL ✓
Energy — IntegratedRIL
DefenseHAL, Solar Industries
FMCGHUL, Emami
LogisticsBlue Dart, Mahindra Logistics
ChemicalsNavin Fluorine, Deepak Nitrite

Top three convictions: BPCL, ONGC, GAIL — chosen on valuation dislocation combined with asymmetric conflict-channel exposure. Each pitch carries a composite scorecard (EBITDA channel, FCF authenticity, ROCE–WACC spread, NAV cross-check), Bear/Base/Bull probability-weighted target prices, a waterfall EBITDA stress test against the conflict channels, and a risk register.

5. Final Deliverables Shipped

  1. 7-slide institutional deck — "Global Conflict Premium & India's Macro Exposure": white background, Georgia/Calibri, navy accent. Macro transmission flowchart with color-coded sector sentiment badges. Visual-first, CEO-readable in under a minute.
  2. Interactive dashboard — companion to the deck for live data drill-down
  3. Client email — drafted and sent via Kotak

6. Methodology Principles

  • Sourced over modeled — every coefficient traceable to RBI, IMF, ICRA, PPAC, MoD, DPIIT, or SEBI filings; estimates flagged as such
  • Visual-first — graphs do the talking, prose is a last resort
  • Directional headlines — slide titles state the conclusion, not the topic
  • Brevity by default — assume an intelligent reader; no padding
  • Institutional standard — Morgan Stanley sell-side benchmark

7. Hard Constraints

  • This is a research report only — not investment advice, not a trade recommendation
  • All valuations are point-in-time; conflict premia are by definition path-dependent
  • Bloomberg terminal data used for live valuation cross-checks