Diwali Picks

Its Diwali yet again! This year has been a roller coaster ride with very high volatility across asset classes. Discipline and focus will help us ride the volatility. Last year, as we had predicted, nifty made a high 6200 and consequently a low of 5100.

For a person who had invested in the nifty in 2008 has generated no return at all, even most mutual funds are under water since most mid cap and small cap stocks are closer to their yearly lows than highs, going forward also we expect the nifty to consolidate with elections looming and economy still to pick up. Investors who have been able to invest in specific stocks with strict discipline are able to generate above average returns. Hence, this year we are going to be more stock specific with no particular view on the nifty.

Therefore, we should invest 50 percent of our portfolio in low risk tax free bonds and the remaining 50 percent in high risk stocks and commodities.

Our view on gold remains the same; at least 10 percent of your portfolio should be invested in gold as insurance against weak government policies and rising dollar.

The interest rate scenario is not very clear with RBI still raising rates due to high inflation but we could be closer to a top in rates, hence some money should be invested in long term bonds.

Have a Happy & Prosperous Diwali !!!

Long term trend is still Bullish in Gold!!!

Since last three days Gold has fallen almost by Rs.4000 and I got more than 20-25 calls from clients. Everybody was asking,” is this right time to buy gold??” So in this blog I am going to give my views on Gold.


India is largest importer of Gold in the World. Though we are largest importer, we are still price taker. Our Gold price is dependent on 2 factors.

1. Gold in Dollar terms     2. Dollar/ Rupee rate

Gold in Dollar terms

Normally Gold follows 20 years time cycle. The last Bull Run has started from year 2000. In 1980 Gold was around $875; in 2000 it made a low of $250. In 2008 it made a High of $1034 and corrected to $680 in 2009(30% from High). From $680 it started going up once again and made a high of $1920 in 2012. Now in this correction, Gold can go to $1250-$1300 once again. Long term investor should start investing around $1300. Normally the last leg is extended leg in commodity market. So Gold can go up to $3000 by 2020.

Dollar/ Rupee rate

As India is an importer of Gold, Dollar and Gold are positively correlated. Gold price in India increases with Dollar appreciation and vice versa. In 2000 Dollar was around 43 against Rupee; it has appreciated to 57 in 2012 by almost 35%. The Support from Dollar will continue for next 2-3 years. Currently $ is quoting at 54.20. In my opinion 53 is a major support level for Dollar, it will not break this level easily. On the upper side, if it breaks 55 levels then it will go up to 59 at least. As I said earlier also, last leg in Commodity and Currency are extended leg. So it can take Dollar to 62-64 levels also. In short, Dollar is going to support Gold prices in India, so keep your eyes on Dollar as well.

Gold in India

In 1925 Gold was around Rs.18.75 per 10 grams. In 2011, it became 26400 so Gold has given around 8.8% compounded annual growth rate (CAGR) for last 86 years in India. With the same return, we can expect Gold should be at Rs.40000 by 2016 and 55000 by 2020.

Yesterday Gold made a low of 25500; it has corrected almost 22% by its all time high of 32500. Normally 25% to 30% correction is considered to be healthy. Now the minor support for Gold is around Rs.25000 and if it breaks that it can go down to Rs22000 to Rs.23000 also. In my opinion one should start Systematic Investment Plan (SIP) around 25000 for next one year.

To Conclude, Gold should make a base around Rs.23000-Rs.25000 in next few months. Hence, long term investors can start accumulating Gold for the target of Rs.40000 by 2016 & Rs.55000 by 2020. So those who have missed the train earlier can enter Gold once again.
Happy Investing!!!

 

Exit, Exit and Exit from Equity!!!!

As I mentioned in my previous blog, Nifty reached 5950. Now it can go up to 6200-6250 also but investor must use this rally to book profits & park their fund in long term debt instruments. From this monetary policy RBI may start cutting interest rates; so those who will hold long term debt instruments like Tax free Bonds or NCDs will get capital appreciation on their debt instruments. In my opinion RBI may cut Repo rate by 200 basis points in a year or two. So debt investors will get at least 15-20% appreciation over and above interest rate.


Now 5830 level is major support for Nifty. If Nifty breaks this level we must exit equity. Second level confirmation will come below 5555. As I said in my previous blog one big sell off is still pending in the market, so better we exit at this point. Now market will become very volatile. I think one should not carry any long position in futures.

Following sectors looking weak:


Capital Goods, Consumer Durables, FMCG, IT, Metals, Power & Real Estates

Following sectors outperform the market:

Banking, Oil & Gas, Healthcare & Auto

To conclude, one should short Nifty below 5830 for target of 5555-5400-5200, stop loss above 6300. Those who don’t want to take short position in market they can buy listed tax free bonds or NCDs. Happy Trading!!!!