Markets await the RBI policy on the 29th January

The markets came back strongly on Friday to gain 0.2 pc for the week. Let us look at the road map for the coming week and also what the markets may do in the month of February.

1. The good results have been pouring in. This week saw Maruti post fantastic results. The results are priced in at a price of 6000 +.

2. Our range for the month of January was 5830 to 6130. The markets may test the upper end of the range in the last trading week for this month.

3. A 25 basis points cut is factored in the prices. Anything more and the markets will rally. At these levels, it is better to enter the front line stocks rather than the mid caps.

4. The tanking of mid caps last weeks underlines the hazards of buying mid caps. When the tide turns there is no safety net.

5. The pre-budget rally should commence with minor falls of 200-300 points on the Nifty.

6. The FIIs have continued buying all through January and based on this, I expect the previous peaks of 2008 and 2010 of 6350+ to be tested once.

7. How the markets behave after the testing of the peak remains to be seen. There could be a small correction after that before we test higher levels or the markets may correct more.

8. In the posts in February, I will demonstrate why February is the best time to sell based on statistical data.

9. The Nifty is currently trading at a Price to Earning multiple of 18.77. The market usually does not peak out at these levels but around levels of 23. The Nifty corresponding value comes to 7500.

7500 may be far off right now, but I would use every dip to accumulate good quality stocks.

The Up Move Continues

The Nifty gained another 1.9 pc for the week. Improved earnings, positive reforms from the Government all helped the markets go higher. Let us try and see what is next for the markets.

2 of the 3 events which were mentioned in the last week post are out of the way. The Credit policy remains as the next trigger.

In the post 2 weeks back, we had spoken of the probable range for the Nifty, it was 5880-6080 we are at the higher end of the range and I expect the lower part of the range to be tested.

Why do I feel the lower end of the range will be tested? This is because the news related triggers are out of the way and there are still 7 trading sessions to go before the Credit policy is announced. Typically, in the week before Nifty expiry, the market reverses direction to the trend it was following for the month. The trend has been up this month so I expect a smaller correction which would be healthy for the markets.

Typically markets have made a top sometime in early Jauary, around March after the budget or in May June time frame. Let us see how the markets pan out. A correction till 5815 will be galthy before the next up move.

The markets are now followig a typical bull market pattern where the beaten down sectors suddely start moving. Oil and Gas, IT sector are the ones which were written of the market. They will be under owned by the market ad they will rally.

The big money will be made and lost in the market during such times. Hence the quality of stocks one owns is the key. Please stick to good quality stocks. I would use the coming dip if it materializes as a chance to add more of the good quality stocks.

Infosys Q3 numbers upbeat, what next?

Last week, we did a quantitative analysis of what can be the range of the markets for the month of January. 9 out of 23 sessions for the month are done with and we are on track with the predicted numbers. Lets take a look at the events which can trigger the expected range. The boundary wall based  on statistics was 5850-6100. We have traversed quite a part of the range already.

1. The Results season will be in full swing next week. Infosys with its guidance gave a thumbs up to the IT sector. More than the results, it was the guidance. Remeber, markets move up 6 months ahead of event actually taking place. After watching the TCS results on Monday and Wipro on Friday, the IT sector will have a re-rating.

2. The major private banks like Yes, Axis and HDFC Bank will also declare their results this week. The IT sector has a weight of 13 pc and the Banks 21 pc in the sector. So, by the end of next week, the directions of 2 key sectors will be out of the way. If the Banks continue with their good showing, the rally will continue.

3. The RBI policy on 29th January will lay down another marker for the markets. A rate cut of 25 basis points is factored in. 50 basis points cut and a CRR cut will lead to a rally.

4. Another event which has no fixed date is the Diesel and LPG price hike.If both are hiked, then the oil and gas companies will rally. This sector has another 13 pc share in the Nifty.

So, we have events which can affect 47 pc of the Nifty composition directly and then we have rate sensitives like Financial institutions and auto sector which constitute another 17 pc. Thus, we have 64 pc of stocks in the index which can move because of 3 reasons:
a. Results
b. Diesel price hike
c. Credit policy

Based on the timing of these 3 events and positive or negative factors each play out we can have the markets rallying or falling. The primary trend is up and corrections can and should be bought into. We have a support level at 5920 coming into play from where a decent bounce up can be expected.

How have the markets traditionally performed in January?

It is a New Year and a very Happy New year to all. The markets typically tend  to make a top in January February period. Let us look at how markets have performed in January typically.

1. In the past 12 years, 10 times markets have been performing alternate to the performance in December. Which means if markets were positive in December than negative in Jan and vice-versa. This year the markets gained 0.4 pc in December so should be net negative for the month of Jan with the same logic.

2. The markets in the past 12 years have always gone below the December closing irrespective of where they close finally. December closing was 5905 this year, so there should be 1 dip below 5900 even though the market may close higher for the month.

3. In 1 year it has also happened that the market even though is mildly positive in December, has gained around 3 pc in January if that happens, then we may be at around 6080 on a closing basis for January.

4. A big fall in the month of January on the basis of statistical data can be ruled out. The range which comes into play is 5880-6080. If we put in a filter of +/- 50 points, then effectively the range for January is 5830 - 6130

5. The markets have rallied on fiscal cliff being averted and the next cliff will occur around end of Februray.

6. The Gilt funds have done exceedingly and the 10 year bond rate is down 7.94 % from 8.14 %. The funds have given an absolute return of 2.5 % in the past 1 month.

7. The Q3 results will come towards the end of the week starting with Infosys on next Friday and I expect a small dip till the results come in. We may test the lower end of the boundary arrived at for the month of January which is 5830-5900 range before going up.

All the picks selected by me and Lakshmi have done exceedingly well and anyone who invested in them would have got magnificent returns.

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:
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.

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.

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.

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.

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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:

http://investmentsfordummieslikeme.blogspot.in/2012/12/is-this-good-time-to-invest-in-gold.html

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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.

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.