Sunday, December 30, 2012

Asset Classes Review and Best Asset Class for 2013

People usually have the options to invest in Equities, Real Estate, Gold, Debt funds. The idea of investing is either to make the maximum returns possible from each of these asset classes or above a particular threshold ( which is my preferred option - I am happy with a return of about 16 % year on year). Let us review the Asset classes last year.

For the sake of easy reference, I have used the Valueresearch site and taken the HDFC Top 200, Birla Sunlife G-Sec fund and Kotak Gold fund for reference. These are 3 main asset classes I believe in. Real Estate is a complex ball-game, with huge amounts locked in and the location makes such a big difference in investing is that I will leave it out of the picture.

HDFC Top 200 returned about 31 pc
Kotak Gold fund returned about 9.3 pc and
BSL GSF returned about 10.5 pc

Equity has been a clear winner in 2012. Let us look at how these 3 Asset classes can perform in 2013 and the Risk-Reward in each of them.

Equities has been a clear winner over the long-term. It is always good to do a passive SIP in the equities over a period of 20-25 years. HDTC Top 200 has returned a compounded rate of over 22 pc returns over tha past 16 years,
In 2013, I expect the markets to peak and have a fall either after Jan-end/ Feb or in the June July period. 6200-6300 or 6700 levels are the levels to watch out for to book profits and re-allocate the same money to either Gold or Debt funds.

Government Securities (Debt funds):
These are the safest investments to do. I have explained the advantages of Debt funds with G-Secs when interest rates are falling in my previous posts . These funds should return 15-10 pc return if the yields on 10 year bonds fall from 8.10 pc to 7.10 pc which I believe should happen in the next 1 year. Profits from equity should be moved here.

Gold funds:
Gold has had a magnificent run up in the last few year, having gone up 5 times in 7 years. Last year has been ok for Gold with 9.5 returns in rupee terms. Much of the gains have been due to a weak rupee. I expect the rupee not to weaken significantly from these levels and goto maybe 57 at the max. The trigger to watch out for Gold is the 1800 USD levels. The entire year was spent in the range of 1500-1800 USD range.

So, to sum up for 2013, I feel equity should do well in the early part of the year. at the first signs of reversal, one can move the profits to Debt funds and Gold is the joker in the pack. If some catastrophe occurs then Gold is the space to be in. 1800 USD is the key trigger.
The period since 2008 has been tough financially for the world. I would compare this period with the Great Depression lasting from 1929 - 1937. We are almost more than halfway through and I expect a tough 2013 ahead. We should see a boom period after 2014 onwards.
Now is the time to accumulate blue chips in 2013 to prepare for the good years ahead.
Have a safe and Happy New Year ahead.

Sunday, December 23, 2012

Markets take a breather

In the breathless rush of analysts talking about 6200-6500, the markets have decided to take a pause. The markets were down 0.5% for the week. The markets also remained in our range of 5702-6114 for December. A break of both range extremities looks unlikely for the rest of this year.

1. The US fiscal cliff remains uresolved. What is the fiscal cliff all about? Basically, US has accumulated a lot of debt. The US economy thrives on buy today pay later philosophy. The Debt needs to be brought under control. Typically, when a individual is under debt, he either increases his earings or spends less. The Democrats want taxes to be raised for the wealthy which means increase the Government earns more. The Republicans want more savings by cutting down on Government spending on welfare programs.

2. If there is no resolution by December 31st, taxes will be raised for everyone thereby reducing the amount in each one's hands to spend. This will lead to US ecoomy weakening and that is why the markets are falling down.

3. Our markets are linked to the global markets and thats why our markets are also falling or remaining sideways. There will be a resolution to the US impasse at the last possible minute.

4. This will be a trigger for the markets to rally. When this trigger comes is hard to guess. It will be in the time frame from December 27th to Jan 15th 2013.

5. How does one capitalize on this? Buy every dip for the rally to follow. The downward targets for this dip are 5800, 5750, 5700 and in extreme conditions 5632.

6. There are 2 schools of thoughts in the circle of my analysts. 1 is that the markets will top out around 6300 in the next 2 months that is till Feb end ( I belong to this school of thought). The second is we have a rally till H1 2013 (June 2013) to higher levels and then have a massive correction. In both cases, a deep correction seems likely.

7. The Gujarat and HP election results have resulted in a stalemate. Congress by winning HP have proved the corruption allegations have not stuck and Modi by winning 115 seats has proved his mettle. The status quo continues till the next elections in Karnataka in may 2013.

Let us see how we map the year 2013. The ongoing correction will give us clues to the magnitude of rally in 2013. If its a shallow correction till 5700, then 6200-6300 as the top and a deeper correction expect a bigger rally.

I plan to publish an analysis of the various asset classes for 2012 by Tuesday or Wednesday, stay tuned.

Sunday, December 16, 2012

All eyes on RBI policy and Gujarat Election Results

The markets dipped by 0.5 pc for the week, thus negating the gain of the first week of December. After 2 weeks of December we are at the same level we were at the end of November. At the beginning of the month, I had predicted a range of 5702-6114. We have thus far covered 5839 - 5965. The range for the first 2 weeks implies that we will not breach the range of 5702 - 6114 in the month of December.

1. The Reserve Bank will decide on the Interest Rates on Tuesday. I expect the rates to remain the same for this month and a cut in January. The reason for this is that inflation is still pretty high though at 10 month low. When Interest Rates are cut more money is available as loans at a cheaper rate of interest leading to more speculation and pushing up of prices.

2. The Gujarat elections results are due to be out on Thursday. Why are these elections so important? If Modi sweeps the elections he will be in the driver's seat for leading the BJP campaign in 2014. The stronger the BJP campaign greater is the chance of Congress getting lesser number of seats. The markets may not like this as they always prefer the party in power to win (The markets reaction post 2004 and 2009 election results is testimony to this). Also, if there is a strong BJP campaign, the Congress may lose seats and the Third Front may win more seats leading to uncertainty.

3. The markets have risen from 5549 to 5965. They are now correcting this entire up move. Considering the time taken from reaching the peak of 5965 and the slow nature of fall implies that a correction is ongoing. This correction has targets of 5806, 5757 and 5708.

4. The oil prices are stable globally and no new crisis seems to be about to erupt on the global front. US has its fiscal cliff issues which I predict will be sorted just in the nick of time leading to a rally in January.

Looking at historical factors, one can safely assume a year end and a ew year rally to at least 6200-6300 levels. Before that I see a small dip before we go up.

Investors can look at booking profits in the rally and moving on to safer investmets.
I strongly feel 2013 will be the year to buy equities for the long term, these will see price appreciation the same as those equities bought in 2002-2003 which are ow almost 5-6 times their acquisition costs.

Thursday, December 13, 2012

Us this a Good Time to Invest in Gold?

After a decent rally from the low touched in Jun ‘12, Sensex seems to be stuck in a range – neither moving up much, nor falling down. Retail participation has been low. Those who missed the rally may be waiting for a deep correction to get in. Others are probably waiting to jump in once the index hits 20000.

In this month’s guest post for Subhankar I had argued in favour of gold as an investment avenue because the domestic and global economy is in doldrums.


Gold in Rupee terms has given just about 5-6% return in the past year. Now is a good time to look at the future prospects of Gold as an investment.

Read more at:


Sunday, December 9, 2012

FDI in Retail passed: What next?

The Government managed to pass the FDI in Retail quite comfortably in both houses of the Parliament. So, what is next in line? The markets responded by gaining 0.5 pc for the week. What is next for the markets?

1. The FDI in Retail got cleared thanks to the M & M support. This has further implications then just the retail FDI. The Government can get more reforms passed due to this stability. Mayawati will not withdraw support as it suits her if the elections are held as later as possible. Mulayam has to play along as the givernment can survive even with only Mayawati support. The victory margin in  the Rajya Sabha underlined this. 123 to 109.

2. The Parliament is in sessio till December 20th and the Givernmet has made its intetions clearig of pushig for additional reforms like FDI in Insurance till 49 pc and the Banking bill. We also have the RBI policy on the 18th of December and any rate cut can fuel a further rally.

3. The markets have run up and need a small breather before the next leg up. A correction is possible till 5700, 5750 or 5800 levels.

4. The markets follow seasonality and usually top out any time between the months of January and Februrary and I expect the same this year. I treat this rally as an exit opportunity and reduction of my cost price of equity bought throughout the year by part booking of profits.

5. Also, the moves i the past few years have been for about 13-14 months, which coincides with the Jan-Feb period I am talking out.

6. Gilt funds look very attractive with a 1 year horizon. The below are 2 Gilt funds I like:

1. Birla Sunlife Government Securities Fund
2. ICICI Pru Gilt Investments

I expect a return of 12-15 pc in the next 1 year.

7. To summarize I expect a correction till 5700-5750 followed by a rally till 6200 at least. How the markets perform after that remains to be seen.

I definitely expect a major correction in 2013 which will be the buying opportunity for several years to come.

Sunday, December 2, 2012

How has December been historically?

The markets have gained 4.6 pc for the month of November. There seems to be a mild sense of euphoria in the markets. Let us try and see how markets have performed in the month of December and our strategy to handle the same.

1. First the good news. Historically the markets have tended to remain positive in the month of December. They have been negative only 3 times in the 11 years under study.

2. Next the picture changes when you take the November and December months into joint consideration. Out of the 8 years when November has been positive, December has been marginally negative twice and 5 times the gains in December have been less than the gains in November. This year the gains were 4.6 pc in November. This implies December could see less than 4 pc gain. This would give us the price target of 6114 at the maximum.

3. Only once in 2003, the December performance has been about 4 times the November performance. If that is repeated we have a price target of 6996 which can be ruled out.

4. The December month lowest price has always been below the November closing price. Also, in most instances it has been at least 3 pc lower then November close price. This implies we would see the 5702 being tested once in this month.

The conclusion from the above study of the month of December is that generally December is positive. The market does give 1 buying opportunity with a small dip. The bullishness in the month of December is less than the bullishness in the month of November. This would also imply that the midcaps would rally more than the large cap stocks.

Now, is the time to maintain caution and keep regularly booking profits at every 100 points of Nifty. My target for the moth of Dec-Jan is around 6200-6300 for the markets to eventually peak out and then begin a negative 2013.

The newsflow has been positive with the Parliament getting settled, Greece issue being sorted. The fiscal cliff also will be eventually sorted out just before the deadline.

Now, it is also a good time to lock in profits from the Equities ito Gilt funds which should give returns of about 15 pc over the next 1 year.

Sunday, November 25, 2012

Markets continue to meander

The markets gained about a 1 pc for the week on the Nifty and continued trading in a range. This range bound trading has gone on for several weeks and will soon lead out to a breakout in either direction. Let us try and examine the various possibilities both technically and fundamentally.


1. The Government is pushing through the Divestment program. LIC has been allowed to buy upto 30 pc of a company. It was 10 pc earlier. This coupled with the news that LIC plans to invest 25000 crores in the equity markets in the remaining 4 months. LIC will be forced to puck up the stakes in the divestment program which also means that LIC will not shore up the markets. This makes the market more dependent on the FIIs.

2. The RBI credit policy review in Dec-Jan may cut rates. Gilt funds are looking great for investment right now. In the past 1 year, the Interest Rates have gone down by about 0.5 pc and Gilt funds have returned about 12-13 pc returns. I expect the Interest rates to go down by at least 0.5 pc in the next 6 months.

3. Gold has quietly gone up to 1751 dollars to an ounce. Any close above 1800 USD will lead to a breakout and at least 10 pc price appreciation in the price of Gold. The rupee has also weakened to 55 to a dollar thus increasing the price of Gold in rupees.

4. Eurozone has gone back into Recession. If one looks at my older posts, I had spoken of a W shaped recession worldwide. Europe has already gone into the W shape, with the US following it if the fiscal cliff is not resolved soon.

5. The equity markets are waiting and watching for the Winter session of Parliament. I expect no reforms to be done till December 20th till which points the markets will drift. Reforms will follow only after the Parliament closes.


1. Technically, we are in the 4th wave down from 5815. We are correcting the rise from 5216 to 5815. This 4th wave has completed a from 5815 - 5583, b from 5583 - 5777 and leg c is in progress.

For the leg c, c-x from 5777 - 5548, c-y 5548 - 5643 and ongoing.

Once, 4-c-y is complete we will have the last leg 4-c-z to end somewhere between 5400 and 5525.

This sets the stage for a downward market till Parliament is in session and then for a new year rally, culminating in a major top around 6000-6200 region.

Thursday, November 22, 2012

4 wheeler sales in India

Auto Sales are very closely tracked  to monitor the ecomony of a country. I had written a guest post for Subhankar yesterday. It can eb accessed at the below link:

Today, there was an article in the Economic Times, reproducing it for your beneift. This article can be accessed at the below link:

Sunday, November 18, 2012

Markets: Time for a bounceback?

In a truncated week of trading, the markets fell about 2 pc to end at 5574 which is below its previous low of 5583. Is it a time for a bounce? Let us try and explore what the markets have to say.

Last week, I had mentioned of 3 probabilities:

I would give the 3 probabilities, following % chances of coming true:

1. Wave C-4 continuing till 5450 - 5525 (40 pc)

2. Wave C5-2 in progress till 5625 (40 pc)

3. Major wave down till 4000. (20 pc)

Probability 2 is now firmly ruled out. So, now either the market bounces from slightly lower levels or continues falling.

The reason I feel we are in for a bounce are:

1. The FIIs bought almost 900 crores last week. The DIIs sold marginally. This means there is no selling pressure.

2. The sentiment has not been damaged. There were good auto sales with Maruti and Hero Honda posting record sales on Dhanteras.

3. The markets have technically closed just the week 5 week low ema and generally do not spend much time below this level inn bull markets. The next week could well be the make or break week for the markets.

4. The gap from 5435 to 5528 has acted as a major support and should act as support once more.

5. Technically we are in wave 4 correction of major wave C.

4 A was 5815 - 5583
   B was 5583 - 5777
   C is ongoing and either wave C-a is coming to an end or the entire 4 - C is ending. Either ways a bounce of at least 100 points is on the cards.

People can go long with a stop loss of 5525 for the short term traders. I still believe we are in for a year end rally to 6000-6200.