It’s been time that I have
been waiting for my targets to be achieved since I wrote my last blog on 19th
March 2012. Today on 21st may 2012 I can say that whatever has been
written in my previous blog maybe it was for rupee dollar or for our economic
growth or for Equity Market performance, I have been able to justify the behavioral
investing is a successful technique and one can learn it easily but only thing
which is required is Simplicity in investing and huge amount of discipline.
As I write today Nifty
closed at 4906 after touching lows of 4770 just a day back. Markets have fallen
down from 5350(my last blog) by almost 10% which I have already cautioned and
the great achievement was target achievement of our Dollar Rupee call which I have
rightly predicted to be at 54+ levels in my last blog. We have followed this
approach for advising our clients, majorly exporters, and they have certainly
reaped the benefits of our advisory.
Nifty at 4900 and Rupee at 55- What Next?
Questions have been asked
and Debates have been done about how the markets will behave and INR trading
above 55 levels giving dangerous signals for our economy.
RBI has intervened twice to
stop the Rupee downfall but of no avail. This clearly tells us that the down
fall has no speculation and is based on some fundamentals. Now let us
understand these fundamentals and try to decipher how the future will look like?
Various data which we have
suggest that we can conclude on 2 things very confidently:
1.
Political
Will lacking for reforms
2.
Euro zone
split
On the first point I would
like to comment that ministers sitting in govt are involved in their own money
making work as they find themselves that People of India will not vote them to
power in next elections and also they are trying to get themselves shield from
various imbroglios in which they are involved. We have to understand that ministers
are not God but humans and like any human being if too many problems come simultaneously
your decision taking capacity is hindered/challenged. Knowing that one is doing
wrong things, one cant control himself.
The result is what we are
seeing. Our GDP growth is coming down, IIP is down drastically, infact its
Negative 10%,inflation is uncontrollable, INR is losing its value so far and so
forth. What happens when these things happen? Government puts pressure on RBI
to decrease rates cursing RBI for higher Interest rate scenario and our Finance
Minister speaks in Loksabha that the slowdown is global in nature and India can’t
do much about global slowdown. Now the RBI governor, to save his head, reduces
the interest rates more that what is required, markets jumps and investors
catch fancy that now since Interest rates are coming down, now is the time to
buy. I would like to caution investors that FIIs or big money chases stocks
when they see clear trend on Interest rate cycle and its impact on economic
growth. They generally wait for at least 2 quarters to decide whether the
effect of rate cut is coming positive or not. But my poor investor is helpless.
He gets the call from his broker/agent stating that since the rates have been cut,
markets will go up as if cutting interest rates only pushes up the market. Here
you are caught.
I foresee political system
in India to get more involved in corruption as more and more cases come out and
political parties deeply involved in solving this crisis of their own instead
of thinking for development of country. Almost every Indian understands that
the current Government will not be able to take big steps and we may expect
earlier election as well which might be declared by early next year. So the
only year left for reforms is the FY12-13 and we are almost half path.
Our risk reward ratio still
remains unfavorable and we still believe markets to go down or remain stagnant
in a range. 4400-4500 on Nifty is a chance on lower side on immediate basis
which is 10% down from current levels. The upside is likely capped at 5150. So
the strategy is to Sell at rise for traders and gradual exit from Investments
for Investors
On the second point on Euro
zone split a major event is coming on 17th June 2012 when Greece
election results will be declared. On a reasonable certainty I find that Anti
Austerity Government will be formed in Greece which will take Greece out of Euro
zone. The impact will be very huge on Euro and as a currency its existence will
come into danger. We have to understand one thing clearly that if Euro
collapses, The US Dollar will become strong which will again have negative
impact on Rupee. Added to this our growing Fiscal Deficit and reduced Currency
reserve will also pose problem and will help INR to devalue itself against US Dollar.
If INR trades around 56 levels by the time Greece results are announced, we
should be ready for looking at 60 levels within few days. I would like to
caution that there will be a collapse in Stock market if this thing happens and
we may even see Nifty levels of 4000 in June itself which will produce a buying
opportunity for Medium Term investors as there can be a decent pullback from
those levels for some time. A closing below 16030 on sensex will not augur well
for Equity Markets
