Budget Week

Tomorrow is the big budget and for traders best is to stay out till the event is done and dusted.
The high crude oil prices do not leave too many options for Pranab Mukherjee. Expect a hike in excise duties, hike in Service Tax to 12 pc from the 10 pc. He would increase the exemption limit on Income Tax from 1.6 Lakhs to 2 lakhs given that the polls are round the corner.
The chart for the week is of the difference between 5 EMA and 20 EMA it has give a sell signal and I expect the low of 5177 to be breached. If 5096 is breached then the previous low of 4786 is the next target.
Please do not buy any options as post Budget the volatility comes down drastically and only option writers make any money.
The FIIs have pulled out early 7300 crores in Feb and about 16000 crores from Jan 1st. The domestic institutions have bought 10000 crores worth of shares. The high crude prices and inflation mean stay out of the markets.

Budget: Whats in store?

The Union Budget is round the corner. Its the usually stuff, where the TV channels will go crazy over analyzing the statements of the Finance Minister. I did a statistical analysis of the budgets since 2001 and markets. I have also tried factoring in what could influence Pranab Babu as he goes about making the Union Budget.

1. There are elections in 5 States including Tamil Nadu, West Bengal, Kerala, Assam and Puducherry. Expect a populist budget with tax breaks for the middle class and no harsh measures.

2. ONGC may be a beneficiary of some form of largesse from the government in the form of subsidy burden being eased, or the royalty issue being settled with Cairn. The way Oil Prices are going up and unrest in Middle East, ONGC and Cairn look like best buys in current market.

3. Gold is holding steady at 1393 dollars. This is just 30 dollars from from its all time high. Good time to accumulate.

4. Last 11 years, Markets have rallied 4 times post budget and fallen 6 times. This is assuming all budgets happened on 28th Feb. I remember in 2009 and 2004, they happened in June.

5. March has historically been a negative month or a month with small gains. Advance tax payments and the budget expectations not being met are some of the usual things.

6. February usually has been a lackluster month in terms of percentage change. This year has been no different.

7. I did a check on the Bollinger Bands and they touched the upper end and coming down now. This means we are headed to 5223 or lower.

The strategy remains simple. Stay light on equities. Keep adding Gold and Debt Funds.

Planning for Retirement

I had done a guest post for Subhankar.
Do you remember what you did with your first pay/payment cheque? (Haven’t received your first cheque yet? What are you doing on this page!) Did you blow it up having a good time with friends and family? Why not? You don’t remain young forever. There is a long and bright future ahead of you – and plenty of time to save and invest. Right?

Nishit doesn’t think so. He started planning for his retirement as soon as he received his first pay cheque. He wanted to use the leverage of compounding over his entire working life. In this month’s guest post, he explains why.
Continue Reading at:
http://investmentsfordummieslikeme.blogspot.com/2011/02/planning-for-hassle-free-retirement.html

Technicals for the Week Ahead

The markets have been in a free fall over the past few weeks and a lot of portfolios have taken a beating. The entire rise from 5350-6339 has been retraced and we are having some serious corrections. Lets look at some technical parameters.

1. The entire up move from 4786 - 6339 has been retraced almost 76 pc. This means that eventually 4786 is likely to be broken, as very rarely do markets retrace 76 % and then bounce to take out the previous highs. For me, the validation would be breach of 5100.

2. The 5 month low ema comes in at 5416 and the 5 week low ema comes in at 5429, expect this zone to provide some serious resistances. The 5 month low ema has been very rarely breached and this could be an indication that we are in for tough times ahead.

3. The trend line resistance for this leg of fall comes in at 5450-5470 over the next week. Breach of this trend line could open further upsides.

4. The Bollinger Bands indicate that a bounce has taken place above the lower band.This means the third wave of the fall could have culminated on Friday.

5. This fall has had 3 waves till now.
Wave 1 from 6178 - 5624 = 554 points
Wave 2 from 5624 - 5802 = 178 points
Wave 3 from 5802 - 5178 = 624 points
Wave 4 is ongoing.
The invalidation point for this is 5624.

6. The 5-day high ema has never been breached on a closing basis in this fall. This comes to 5363 for Monday.

7. The difference between 5 ema and 20 ema is now 223 and has reached an oversold level which indicates a bounce coming. The bounce has already started.

Monday will see some kind of bounce thanks to the Egypt crisis being resolved. It could be an opportunity to take profits off the table for positions created at lower levels. The region 5410-5470 has a multiple of resistances coming.

Real Estate Investing in India

I had a detailed chat with a very dear friend of mine just now and we had a very animated discussion on Real Estate investing in India. I feel Real Estate investing ranks very low in the asset class of investments and one should limit oneself to investing in the place one stays and maybe another home only when investments are done in other asset classes.

The various Asset classes one could invest in are:
1. Equity
2. Debt
3. Gold
4. Real Estate

The advantage of Equity, Gold and Debt investments are that one can liquidate the holdings in maximum 1 week and one is free to move around with the cash.
Real Estate when the prices fall, there are simply no buyers, lot of legal paperwork to be done, lot of chances of getting duped and one cannot have cash when one wants it.
There would be several people arguing with me saying that prices have multiplied 4-5 times in last 20 years or so. The same is with Gold or Equity. This morning I was discussing with an elder that in 1975, her salary was Rs 380 only. That time 10 gms gold cost 200 rupees.So 1 month salary bought her 20 gms of gold roughly. That means here salary was actually Rs 40000 in today's currency.

One more problem with Real estate is that the assets decay. There is maintenance required for the building. The property may get encroached. One has to make several trips to see if the home is good shape.

All these reasons have convinced me that real estate is the last investment option for me, after I have exhausted all other avenues. Gold,Equity, Debt I can sit i my comfortable computer chair and transact in peace whether ever having to make rounds of The Collector's office, Builder's office or the site itself.

A second vacation home would be an option only if one is willing to make those trips and have someone clean up the place regularly.

1 more option is that asset is given out on rent and I get a rent yield of about 6 - 7 pc post tax returns. This also mainly commercial real estate would give me that not a residential complex. The amount of black money component also is a 1 more thing which would put off salaried folks.

Is it all Doom and Gloom?

The markets closed down 2.1 pc for the week. The Market has closed below its 200 EMA for about 7 days. This is the longest it has closed since the whole Bull Market began in March 2009. Now, what are the implications of all this for all of us?

1. Fixed Deposit Rates have climbed back to 9-10 pc. This makes Equity Markets with its current volatility not a viable option. The Yield on the Nifty is 4.83%. (Inverse of P/E). A 10 year government security gives us 8.24%. This implies debt instruments are more attractive then investing in the markets.

2. The Prices of Petrol have gone up from Rs 48 to Rs 63 and further hikes likely over the weekend. A rise of 33% in a period of 4-5 months.

3. Interest rates have gone up around 200 basis points on home and auto loans. Coupled with further hikes to come, the disposable income in the hands of middle class consumers becomes lesser. Indians by nature are savers and this gives further impetus to the hoarding and spending less.

4. The surprise crisis in Egypt will curb flows to the emerging markets. The importance of Egypt stems from the Suez Canal. If the Suez Canal is closed, the ships will have to traverse a longer distance leading to 40% increase in freight costs.

5. Crude Oil is on a boil. Brent Crude has crossed 100 dollars a barrel to 28 month highs. The Indian oil companies are making under-recoveries about Rs 2 on petrol and Rs 6 on Diesel. I would not be surprised if fuel prices are hiked over the weekend.

6. The RBI is hopelessly behind the yield curve. The Interest Rates should be hiked at a faster rate.

7. The challenges we face now are high inflation, threat to external flows, lack of domestic liquidity. The Real Estate market is showing early signs of going into recession. The Realty Index is down 41% from November highs. The Markets are always 6 months ahead of the ground realities.

8. If the Index hits 5000. There would be a multi -year double top leading to a bear market till Q1 2013 and a target of minimum 3700 o the Nifty which would also be the pre-election gap. I would elaborate this in a separate post.

What do we do now?
There would be a technical bounce back. Use that to lighten equity. Add 10 year G-Sec which could be obtained in the form of Mutual Funds. Stock up on Gold, crude oil (proxy is ONGC ad Cairn) and sit back and watch history being made.