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Wednesday, July 10, 2013

Nifty 5400 in July Series?

God is angry.The tragedy in uttrakhand is Himalayan in human and economic terms and an added burden over and above the Current Account Deficit already there.
 
 
Everyone is bracing for the worst Quarterly Corporate results.Prediction of profit growth of around 5% on average this time.As described in an earlier article by yours truly the Rupee vis a vis US Dollar cracked below the psychological level of 60.
 
It will soon come to a point where investors will start doubting whether to get into equities after a year and in many cases a couple of years of losing money.Emerging markets are down 18-21% from their peaks and their currency has depreciated by the same percentage in the last One month alone!
 
Highlights of the Month:China is warning of a slowdown.The USA and Eurozone has shown some encouraging 'green shoots'.The Fed threatens to cut down on the free supply of money.JLR  union in UK votes for a strike.Crisis roils Eqypt.Oil spikes above $100.
 
A time of Flux.The slowing of Commodity prices was negated for the Indian economy by the fall in the Rupee.I feel that going forward the main triggers for India will be the two Cs-Currency and CAD.The political leadership is still more in lacunae and the only positive is an expected rise in Government spending before next year's general elections.With a disjointed opposition and no major agenda or leader capable of guiding the country out of the economic morass its likely that things will drag.
 
No sector in India looks proof from recession.The huge ECB by Indian corporates are weighing down balance sheets and in 80% of the cases no profitable deployment of the cash reserves has taken place.Promoters are under pressure to meet obligations.China slowdown to impact the metals and mining sector most as exports will get hit.FMCG needs price hikes to counter Rupee woes.The List goes on.
 
Right now the beaten down gems&jewellery segment looks best bet for next two months on the back of growth in the US which is the export destination for most Indian GG firms.
 
Banks have not taken the signal from the Finance ministry to lower rates and with Rupee volatility the RBI is not going to be in a rush to change the situation.So with the risk free rate of return around the 6-7% mark seems the best destination for your money in this Quarter.
 
Domestically the 70% increase in imports and 30% reduction in exports on YoY basis is frightening for an economy that is getting licked by the Chinese manufacturing glut.I have consistently maintained that the factors slowing India are macro in nature.
 
Until manufacturing,exports,infrastructure expansion figures become positive,we will not be able to break out of this downward spiral.Quibbling over Growth being 5% or 5.6% as is happening politically is not the answer.
*Apeda figs


When measures to increase jobs,capital goods,exports is the need of the month,the BJP,supposedly the alternative to the UPA government starts campaign by promising to build a temple at Ayodya.I mean how stupid or cynical one be to inveigle the voter to bring in a government that goes to astrologers and Sadhus for guidance?Bad portents.
 
I would not be surprised if the long only Funds start liquidating their positions in Indian equities because there seems to be no silver lining on the horizon!!
 
The Food Security Bill in this month is a major negative for markets.I would not be surprised if a combination of factors-interal as well as global can take the Nifty to 5400 in the July series.The Bears are in front with my expectation of the Index not rising above 6050 even with positive tides.