With the pall of gloom setting on the economy investors have started pulling out money from the Indian equity market. There is a panic situation engulfing the equity markets. If past history is analysed such situations lay the foundation of a sustained bull run. The most important mantra for making money on the stock market is one's ability to predict the future events with accuracy. Stock markets always discount the future in advance. As I had indicated in my last post, the situation was turning grim for the equity markets. The markets at the current levels of 4800 on Nifty and 16000 on the Sensex have already met my targets. But there is still some more pain to come. Indian rupee has dipped to 54.50 against the US dollar, and is likely to move further towards 56-58 range as indicated by me earlier. Let us try to analyse the movement of equity markets during Samvat 2069.
The Hindu calender year Samvat 2069 has commenced from 23rd March 2012. Samvat 2069 promises to be a year of extreme volatility for the Indian economy as well as equity markets. The prices of essential commodities will continue to rise rapidly, putting pressure on our fiscal situation as well as leading to volatility in the rupee vis-a-vis US dollar. The dollar will also continue to appreciate due to its safe haven appeal as Euro zone totters. The current volatility in stock market is a result of the movement of Jupiter from Aries to Taurus. This transition period that started from 4th May 2012 will continue up to May 29th. Equity markets are likely to make a bottom during this period. The current bottom is likely to be higher than the level of 4531 on Nifty which the Nifty touched in December 2011. Once a higher bottom is confirmed, equity markets would return to some stability after 29th May 2012. Thereafter it will be a phase of prolonged consolidation for our markets with markets moving in the 4700-5400 range for the next 4-5 months. A sustained uptrend is indicated only after 14th November 2012. Samvat 2069 also promises that equity indices will touch their previous high (6300 on Nifty, 21000 on Sensex by March 2013).
Retail investors must utilise the current opportunity to enter equity market with a 1 year plus perspective, and do not panic during the ensuing volatile phase to make excellent profits during Samvat 2069. The reasons for Indian equity markets returning to their past glory after November 2012 are analysed below:
- Rupee would start strengthening after making lows of 57-58. It is likely to come back to levels of 49-50 by March 2013.
- Inflation, specially food inflation, will start its downward journey from October 2012, after a good spell of monsoon in the 2nd phase, drought conditions are likely to prevail up to June 2012.
- Major industrial commodities will lend stability to markets. Crude Oil shall continue its downward spiral easing pressure on India's BOP situation.
- RBI will have to postpone its next rate cut till October- November 2012. Consequently, the quarterly results of India Inc. would show an uptick only from December '12 quarter.
- The govt. would show some semblance of stability after the completion of Presidential elections. The possibility of a mid-term election, if any, shall also be resolved by November 2012.
- Major electoral processes world over shall be completed by January '13 with the US presidential election, this would lend stability to the world markets.
Keeping in view the above analysis, investors may get into equity markets now, provided they can tide over the consolidation phase over the next 4-5 months. The risk reward ratio at the current levels is extremely positive, with the downside restricted to 5% and the possibility of a 30% gain from current levels in the next 9-12 months.
