Equity Investment: Poised for explosive returns

Equity investors have had a raw deal in the past almost five years. The broader indices which recorded new highs of 21000 (on Sensex) and 6300 (on Nifty) in January 2008, are trading way below those levels today. It has been a volatile market ever since, where the nimble footed traders only have made profits. But equity markets are now showing signs of bottoming out and are likely to give stellar returns in Samvat 2069 and 2070.

 

Equity markets move in cycles and the tide seems to be turning in their favour now. Let us understand the factors that will trigger the revival in equity markets:

• Global Economic recovery: The turbulent times in equity markets were a direct consequence of the global economic turmoil in the past 3-4 years. US economy has shown definite signs of revival, however, concerns about the 'fiscal cliff'' remain. The Obama administration is likely to find a solution to this issue in the next six months. Euro zone is also likely to return to normalcy, despite problems of a few member nations. India and China shall be back to higher growth trajectory as inflation issues get settled.
• Interest Rate Cycle: The Interest rate cycle has already peaked in India. The Govt. of India is taking steps to control the fiscal deficit. This will result in taming inflation by the last quarter of fiscal 2012-13, and the consequent strengthening of the Indian Rupee. We should see the Indian Rupee moving towards the Rs.50 mark against the US Dollar by March 2013. This will trigger FII's returning to Indian markets in droves. Once RBI gives the signal for cutting interest rates, markets will be compelled to re-rate the growth potential of companies.
• Political Climate in India: The political climate has been vitiated with the focus on scams. The negative political cycle has almost played out and we could see the Govt. returning to the path of sustained economic growth. We could see early elections and the positioning of a progressive Govt. at the centre by the end of 2013. This would pave the way for a smart and consistent recovery in the Indian stock market.

Given the above scenario, I would be inclined to give a thumbs up to equity investment at this juncture.  Any correction in the equity markets from hereon, should be taken as a golden opportunity to invest in equity market. The markets are not likely to fall below 17000 on Sensex (5200 on Nifty). As per my conservative estimate I would put the level of Sensex at 25000-26000 (Nifty at 7500-8000) by Diwali 2014. As it always happens, some new sectors would lead the surge of the equity indices in the new bull run. I am particularly bullish on Media & Entertainment, Hotels & Travel, Export oriented sectors (Textiles & Gems/ Jewellery), Infrastructure (Roads, Ports & Logistic businesses), Power sector to lead the next rally. Investors are advised to make their portfolio with companies from these sectors. Wish you 'Happy equity investing'.

 
 

 
 

 

Investment ideas for samvat 2069

Diwali the festival of lights is also an auspicious occasion to review one's investment portfolio. Samvat 2069, marking India's official new year (The Vikrami era) has commenced on March 23, 2012. But for the business and the broker community new Samvat commences on Diwali day, when they introduce new books of account after performing 'Lakshmi Puja', the worship of the goddess of wealth. So this is an ideal time to review the wealth earned on an individual portfolio. Let us review the potential of each major asset class during Samvat 2069:

 

Fixed income Instruments: The interest rate cycle has almost peaked out and we could see a reduction of at least 1-1.5% in the benchmark interest rates till next Diwali. Bank deposits have shown a decent growth in the last year, and investors looking to invest in safe havens are advised to book long term deposits of 3-5 years before interest rates start falling. Bond market which has given a stellar performance in Samvat 2068, may remain subdued as risk appetite returns.

 

Bullion & Precious metals: Gold has lived up to the ancient proverb 'All that glitters is gold' having given around 15% return last year. Silver has also added to its lustre. But most of the gains in Samvat 2068 are attributed to the depreciation of Rupee. The Rupee has depreciated by over 12% to a level of Rs.55/dollar after briefly falling to the levels of 57/58 in July-August 2012. The fear generated out of the "Fiscal cliff' in US and the consistent support of Obama for Ben Bernanki, the global liquidity position shall remain comfortable, pushing Gold/ silver prices to new highs in Samvat 2069. Gold prices currently hovering at $1720/ounce are likely to appreciate towards $2100 mark in a years time, marking a gain of 20%. But the impact in India will be muted as Rupee is also likely to strengthen by at least 10% once the Indian govt. is able to fix its fiscal/ trade deficit. We could see rupee/ dollar parity of 50 by March-April 2013.

Real Estate: Investment in property has yielded super normal returns in the past 3-4 years. But the growth has slowed down in the later half of samvat 2068. The realty market is currently overheated due to excessive speculation. Dearth of genuine buyers in the market does not auger well for the orderly growth of this market. Social activism is exposing the nexus between businessmen and politicians in garnering real estate at rock bottom prices and then jacking up the prices artificially to make super normal profits. There has been a tendency amongst builders to offer more and more luxury projects without adequate demand to support the high prices. Real estate market, other than the affordable housing, is headed for a massive slowdown in Samvat 2069.

Equity Market: Equity market has given a return of around 9% in Samvat 2068. However, from the view point of the small investor markets have hardly moved between January 2008 to Diwali 2012. The broader indices have yet to top the highs (21000 on sensex and 6300 on Nifty) made during January 2008. This is precisely the reasons small investors have shun the market. The markets have gone up in the recent past mainly on the back of FII investments. FII's continue to be bullish on the Indian equity market. small investors are advised to follow the FII's as the bad times in the markets are over. The next major bull run will be triggered by the announcements of interest rate cuts by RBI in the last quarter of current fiscal. Markets could test the earlier top of 6300 on the Nifty during Samvat 2069. The volatility will, however, continue and the markets may move in a broad range of 5200-6400 on Nifty till next Diwali. Investors are advised to enter near the lower end of this range for a 20% return within a year. I shall discuss in detail the prospects of equity markets in my next post.

I wish all investors a very fruitful Samvat 2069.

US Presidential Election 2012: It's implications for India

Hopes are running high as US votes to elect its 45th President. Mitt Romney of the Republican Party would be the 45th President of US if he wins the November 6th electoral battle. Barack Obama seeking 2nd term as a Democratic party candidate is on a shaky wicket on the eve of the elections, despite a strong last ditch effort by former President Bill Clinton in his favour. Obama has also tried his level best to turn the tide in his favour by the sympathetic handling of the situation arising out of 'hurricane Sandy'.

What are the implications of this electoral battle for India? Barack Obama inherited a weak US economy from his predecessor George Bush, but has not been able to bring back the US economy to its past glory. Unemployment and jobless claims have risen to new highs under Obama administration, even as the economy grows at a paltry 2.3% p.a. Obama the Lawyer-politician faces a stiff test from Romney the Businessman-politician. 1947 born Romney is much older than 1961 born Obama. Will the US public choose a more experienced man over the youthful Obama?

Obama's policy towards India has been a mixed bag. In rhetoric he has defended India against its rivals China and Pakistan, but has done precious little to re-enforce his stand. His policy of appeasement towards Pakistan has left India high and dry. He has often supported China at the cost of long term US interests, for short term gains for US treasury. Mitt Romney is far more outspoken about his views on China, it remains to be seen how he behaves towards China if elected. Obama who has had a restrictive Visa regime for Indians, has been an obstacle in India's entry into certain areas in the US economy. Mitt Romney has taken a liberal view on Visa for Indian nationals. 

Although it is going to be a photo finish I shall put my money on Romney, because he could be a better option from India's perspective. A victory for Romney could provide the US economy a much needed booster with an immediate uptick in the stock indices. Indian markets would also greet a victory for Romney. The commodity markets which have been depressed for sometime could see a strong upsurge. We could see Gold and Silver prices attain new highs by year end. However, the price impact in India would be marginal as we could see the Rupee gaining ground against the US Dollar. I would expect the Indian Rupee to get stronger towards the Rs.50 mark to a dollar in the next 2 months.