People around are testimony for the analysis and belief that the sensex should be consistently growing back and breaching 21000 levels. much has been written by me in this respect in last one and half years. The only only difference is that it has moved faster than earlier thought of dec 10 / mar 11.
Future of the sensex going 25000 levels cannot be ruled out by dec 11. The downside is the fact-
1.political instability is expected
2.next polls are going to be real divided and clear mandate to congress will be difficult, BJP to score
3.Fiscal , inflationary pressure and increase in interest rates, OBAMA play on outsourcing will have a negative impact on the economy and sensex.
Consistently soft aware sector will be under pressure and there will be spikes in the interim. Stay away from the sector ; book profits
Agriculture and microfinance companies, banks like IndusInd, SBI, UCO, PNB, United Bank, shall do good and beat the market returns.
Cement, automobiles, steel and gold, power for next 5-7 years will be a good bet( Core sector)
Cairn energy is going to be the next RIL in making.
Real Estate will live in the clouds of confusion and funding to the sector will have to be done under the new rules which are very much needed.
Maruti is a stock to exit as the pressure due to new launches in the small/mid segment shall reduce its market share.
Fertilizers , pesticides and seeds / agri based companies will do fairly well and beat the market. Strategy in terms of buying at 21000 levels leaves great downside with VAR of more than 10% in a day. Accordingly the concept of booking of 50%of the profits and reinvesting of the profits in new basket shall hold good.
FX Outlook:
USD/INR - INR appreciated on account of inflows and depreciating USD on account of consistent bad number of the US economy. Though Indian economy in last couple of months has performed better than before. Level of 44-45 by Dec 10 has been discussed and analysed amongst the fraternity. The same is true in Sept end.
The fact that the overnight rates have increased to 6% levels and INR is appreciating are inverse signals and there seems to be a correction. USD/INR may bounce back to 45.5 levels and spikes can even be more.
USD/JPY - Level of 84 was expressed as the possibility but sustenance of the level is merely on account of the BOJ intervention as the appreciating JPY is detrimental to the exports and JPY economy is exports/receivable led. US dependence is very high and USD is still not shown signs of recovery. Increase in USD LIBOR rates has led to further appreciation of JPY.
USD carry has reduced to some extent in the recent past on account of interbank funds were scarce and USD funding reduced leading increased spreads and also overnight rates.
As the European and US numbers improve, which may take further couple of years3-5 years, Indian and Chinese currency, economy will see inflows.
Capital creation and PPP needs to be grown in the hands of the people for them to be able to support the supply and expectations of the foreign players. THIS WILL BE A CHALLENGE! AND ANY LEAD AND LAGGING PERIOD WILL SEE A DAMPENING IMPACT ON THE CURRENCY AND SENSEX AS WELL.
Crude has been stabilising in the region of 75USD/barrel. The same is sustainable and justifiable based on the marginal cost of production and miners are happy earning good margin.
Gold is expected to breach all levels and 1300 USD/ounce is not a far target to achieve. Investment in gold at all time high levels / entering at this time for a 5/10% incremental gain is a risk of losing.
There is a cartel possibility of a melt down psyche as the markets have heated world over and scope for making money by the big invest met banks at such high levels and fresh positions in gold, crude, currencies and futures on agri and weather are not happening and hence reason of reduced volatility in metals and crude in last 3 months. ITS JUST PLAYING SAFE BY BIGWIGS!!LETS WATCH THERE MOVES!! AND CARTEL FORMATION! CARTEL FORMATION TO CREATE A BEAR PHASE IS A LOSING PROPOSITION AND DOESN'T WORK!! BULL PHASE CARTEL AND UNDERSTANDING WORKS IN MARKETS!!
INFLATION:
India is bound to experience Higher inflation and fundamentally the reason for the USD/INR is difficult to hold for 44 levels. Superficially on account of inflows it will behave at these levels.Technically the pressure is towards 44 levels but if breaches 44 levels there are chances that it will remain there for couple of weeks.
Happy Investing!! Happy festive times!! Enjoy the burden of CWG Spending, our generations will pay the debt and medals will be won by others!!
Best Regards
Dinesh
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