Nov10

Diwali Greetings

Posted on November 10, 2015 by investmentacademy

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Oct16

Your Strategy for Gold & Silver

Posted on October 16, 2015 by investmentacademy

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Regards
Dhaval Shah
Khushi Investments | Blog: https://investmentacademy.wordpress.com/ | 98255 28815

Sep29

RBI Cut Interest rates by 0.50%

Posted on September 29, 2015 by investmentacademy

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Regards
Dhaval Shah
Khushi Investments | Blog: https://investmentacademy.wordpress.com/ | 98255 28815

Jun2

Buy Silver

Posted on June 2, 2015 by investmentacademy

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Dear Investor

I had recommended to start buying Silver last year when it was around 40,900. Silver has traded in narrow window since then.

I recommend to add more at this level. I believe, Silver is in firm up trend.

Upon breaching 40000 firmly, it looks to scale up to 48000. And, if strength sustains, it can scale up to 56,000.

Few reasons:

Silver has corrected more than 60% and looks bottomed out after3-4 years consolidation.

Silver production has come down in 2015.

60% of Silver produced is used in Industrial purpose.

Gold/Silver ratio is at historical high. Hence, It looks Silver will outshine Gold in next rally.

All most all currencies of the World are getting devalued or have been tried to devalue by respective Central Banks of the World in past few years and it continues even now. Seeing deflationary pressures in the developed and now even in emerging world, currency devaluation will gather pace in time to come. Silver looks best hedge and insurance against volatility.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

Disclaimer: This is a free daily investment newsletter published by Investment Academy. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. Author might have open positions in the stocks and Indices recommended above.

Feb2

Where to invest in 2015?

Posted on February 2, 2015 by investmentacademy

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Dear Investor

SUMMARY

Globally, Deflation ( declining demand and prices)has emerged as imminent threat. Developed economies (Govt and Central banks) have been attempting every possible option like –ve interest rates & debt to GDP raising in excess of 100%, to stimulate demand. But, it seems efforts are not paying targeted results and economies are sleeping into deflation.

If Deflation spiral will continue in 2015, developed economies would be in huge trouble as Govt and Central Banks have already used all available options( Rate cut to Zero, Quantitative Easing and Govt expanding Fiscal muscle in excess of 100% Debt to GDP). In Deflationary Spiral Asset Prices, Commodity Prices and Gross Demand of Economy precipitate to the trough. Persistent low Demand and low Prices squeezes the margins of the company and thus lay off starts. Which further aggravates the economic situation. In extreme Deflationary conditions, Banks starts defaulting and may go bankrupt as happened during 1929 Great Depression. Even Some nations with Debt to GDP more than 100% and foreign Debt forming much of the debt part can default on sovereign obligations, like Greece and Argentina recently.

Global Geopolitical situation, where one eye should be fixed of investors in 2015 as it has reached to very critical stage. Israel could be dragged into fight against ISIS and Russia can exert more pressure on bordering nations.

Indian Economy has been struggling hard to recover from last 2 years slow down. Though Stock market has been scaling all time highs, hoping fundamentals will reciprocate with the help of aggressive reforms done by the Govt at the Centre, situation on ground has not improved much. Credit demand has come down to 9.6% from as high as 21%, 3-4 years back. Partly also due to RBI’s tight monetary policy. But, lack of investment is proving to be tough bottleneck to get over. Govt is still running high fiscal deficit, private companies are leveraged( latest report shows, may take 15 months to deleverage) and Banks are running large NPAs from Infra and Capital goods sectors hence not willing to lend them.

Therefore, Investors need to fix eyes on one parameter in 2015 and that is Investments. It will require either Govt flexing Fiscal expansion again till the time Private economy readies itself or bringing Foreign Investments, which has been aggressively tried by both PM and FM. To start the Growth Engine of Indian Economy, it needs 1 to 2 lakh crore of investments initially.

Therefore,

Investor Portfolio should Have some Gold, Have reasonable Cash, Reduce Equity and Real Estate, Have some long term Govt Bonds( GILT) to align your portfolio with prevailing dynamics.

In Detail…

Global Situation

“ It is inevitable for investors, in 2015 ,to remain closely updated with Global Situation. 2015 can be another 2008, wherein India had collapsed though crisis did not origin in India. Global factors will remain main driver of year 2015, with greater focus attached to Deflation in developed economies, geopolitical tension in Gulf with Israel jumping in at some time and Russia exerting more pressure. “

It seems, Globally, 2015 is going to be very chaotic, confusing, surprising, shocking and noisy year with significant developments on Economic and Geopolitical front. Asset classes will also collide with each other then ally with each other and then depart from each other. It is so confusing and complex to predict what will happen in Global markets and economy in 2015, that Very smart investors and big hedge fund managers are adopting simple diversification strategy to preserve the Capital. And their strategy is, invest evenly(25%) in each asset class, which goes up when 1. Inflation is more than expected 2. Inflation is less than expected 3. Growth is more than expected and 4. When Growth is less than expected.

Therefore, if there is one important advise, I can suggest to investors is

“ You should not be overly invested in any one asset class, except Cash”

The main threat to Global economy in 2015 is Deflation. Let me explain the dangers attached to Deflation. We will have to go back some years to understand it.

Till 2008, almost all nations on the earth were going high. Economies were expanding, Demand was on continuous rise, Commodities were zooming to the sky, New investments were initiated in many large projects with the expectation of future price rise, all most all companies were expanding their current capacity expecting higher demand in time to come. Ever increasing Global demand was driving this expansion and borrowing.

But, in 2008, Suddenly crisis enveloped this burgeoning Global economies. People, Institutions and Companies, who had borrowed massively in past years, expecting perpetual demand rise, were unable to pay off the interest, even. Because , Demand collapsed. And, in all these boom years, they had spent whatever they earned, not leaving anything for rainy days. Saving rate of US was -7% before crisis. It means, People were deep in debt by 2008, they had borrowed much more they can afford to. They were leaving on borrowed money. Similar was the condition of Companies and Institutions, they had undertaken massive expansion, overestimating future demand.

In brief, Developed Economies had gone far ahead of realities.

Therefore, When crisis( Reality) struck in 2008, Many companies and Banks went bankrupt. Companies expansions were underutilised or unutilised and people were unable to pay off the debt. Lakhs of employees were laid off in US, Europe and other advanced economies. This collapsed Demand substantially. But, yes , People learned not to overspend and to save.

Now, Advanced Economies depend on Consumption by Citizens to the extent of 60 to 80% for economic growth. But, this demand has come down. Due to low Demand and higher Capacity to produce, it has forced companies to lower the prices. With lower prices and margins, Companies can not afford to keep large work force and thus Company reduces workforce to remain lean and competitive. This is start of Deflationary spiral, wherein low demand caused low price and it further feeds to low demand.

But, now the situation turns grim because Commodity prices fall 40 to 65%. This feeds further price fall of assets and goods. Continuous low price environment also induces Consumers to postpone the buying decision.

With continuous price fall and demand fall, it becomes difficult to sustain business and pay down the debts as Income level keeps going down in low price and low demand situation.

Commodity price fall also indicates low current and future demand.

Now, question arises, How low price and demand can fall?

Govt Bonds are the best measure of that. Govt Bond always discounts and reflects expected Inflation or Deflation in the economy. Like India’s bond yield was close to 9% in 2014 showing elevated inflation expectation, which dropped to near 8% now, indicating Inflation expectation has softened to some extent. Which is visible also in Inflation numbers.

Now, It is shocking and surprising to learn that most of the European nations bonds for 1 to 4 years are quoting negative yields! It means for next 1 to 4 years, Investors and Institutions are seeing low price-low demand scenario ( negative inflation i.e. deflation) in these nations!

Height is Switzerland, where even 10 year Govt Bond is trading at -0.008, It had gone down to -0.80!

Let me explain the effect of –ve Bond yield. Say Rs. 100 bond yield is 1% that means you will get Rs. 101 after a year. If same bond yield is -1% means you will get Rs. 99 after a year.

Now you understand, Investor are lending trillions of dollars to European nations and to Switzerland at –ve interest rates. Why? Do they love to loose money? Heck no.

They are lending at –ve yield because they know that price and demand(inflation ) is going to fall much more. It means, if bond yield is -1% then price and demand are expected to fall more than 1% in bond tenure. It means, inflation will fall to such an extent that even lending money at -1% will make them money.

In last 1 month, Inflation has fallen in almost all developed economies with almost no exception. It means, Deflationary spiral is not limited to Europe but is quickly spreading to US and other parts of the World including major Emerging nations. For example, Thailand’s latest CPI (Inflation Index) fell to -0.41% against expected 0.25%.

To stimulate Demand and to see rising inflation, Central Banks of the world have printed trillions of Dollar. Govts have also expanded fiscal limits to the extreme. But, Inflation(Demand) is still not on the horizon. Instead it(Demand or Inflation) is sinking and sinking fast. The matter of concern is, If inflation continuous to sink fast and deflationary spiral aggravates, there is limited room for counter attack.

Having printed trillions of Dollars, Euros, Yens and Yuans and Sterling, capacity to accommodate further monetary expansion is very limited. Fiscal constraints will force Govts to walk tight on Fiscal discipline else rating downgrade is feared like France downgraded recently by Fitch.

Let us see in below table the Fiscal position, Debt to GDP ratios, Unemployment rate and Current Bond yield (as on 30/01/2015) to understand the larger picture.

Country	Govt Bond Yield % (10 yr)	Debt to GDP Ratio %	GDP Growth rate ( YoY) %	Unemployment rate %
Japan	0.290	227	-1.20	3.40
Germany	0.304	76	1.20	4.80
France	0.547	92	0.40	10.40
UK	1.33	90	2.70	5.80
Spain	1.43	92	2	23.70
US	1.63	101	2.5	5.6
Italy	1.66	132	-0.5	12.90

Hence, It is easy to understand that When smart investors and big institutions of the world are lending trillions of Dollars to Japan, Germany and France at less than 0.50% for next 10 years, they are expecting negative inflation in these economies for next some years. Bond yield in the vicinity of 1 to 1.50% in rest of the developed economies also clearly suggest that Inflation will remain near 0% to –ve for a period.

And, as I have said earlier, in Deflationary spiral, highly leveraged( deep in debt) Institutions, Corporations and individuals go bankrupt as real debt becomes much difficult to pay in.

Therefore, I recommend investors to remain evenly allocated to major asset classes.

Some exposure to GOLD is must. And, some higher allocation to Cash (Treasuries – 90 days Govt Bond) is compulsory.

If you are overly allocated to Equity and Real Estate, reduce it as soon as possible.

Deflationary spiral will lead to more currency war as it is visible, started by Japan and then by Europe and now by Switzerland and China. Hence, if you are overly allocated to international assets, reduce it within your risk limits.

India

India is on better footing, now. Rupee is stable and has shown great resilience against dollar’s recent strength. Current account deficit ( Exports-Imports) is contained now at 1.7%, Commodity prices have come down significantly helping to ease inflation pressure, rapid pace of reforms by Central govt are aiding India’s prospects. Most significant positive for India is stable and majority government to expedite decision making process. Decisions taken by Modi Govt since May, 2014 have very long lasting positive effects on Indian economy, its real effect and results will be seen 3-5 years later when implementation would have completed.

But, yes we have our share of problems too. Problem is Investments. As a nation, we need huge investments in Infrastructure to jump start the economic engine. It has been said time and again that poor infrastructure is one of the major reason behind stubborn and periodical rise of Inflation. The total need to spend on Infrastructure is close to $500 bn (Rs. 30 lakh crore).Due to ill governance and opaque policy environment, close to Rs. 18 lakh crore projects are pending for approval for lat many years. This is legacy of last Govt, Which will be cleared as laws are amended and reforms take place. But, many projects, even if approved, will fail to start as Banks are not ready to finance Infra projects as they are running very high NPA from these sectors.

Therefore, we need major sources of finance. In economy, you have two major sources of investments one is Govt and Other is Private companies.

Now, Govt is running very high Fiscal deficit. With cost cutting, cutting planned expenditure and selling off some PSU stake, Govt would be barely able to reach 4.1% fiscal deficit target. And even this would have not been possible, if Crude would have stayed around $100. The Point is, Govt is in tight situation and has very limited fiscal space to expand and spend in the economy.

Private Corporation and Conglomerates of our economy are still buried under large debt. And according to recent FICCI and CII estimate, it will take 15 months to deleverage.

From Business- Standard (23-12-2014)

“ Assocham (Associated Chambers of Commerce and Industry of India) President Rana Kapoor said: “It will take another 15 months before a significant deleveraging of the private sector can happen. By March 2016, they will be back in action.”

Barring a few large conglomerates, there was high leverage in the private sector, especially in the infrastructure and core segments, he said.”

Third option is, we bring foreign investments in our key infrastructure projects like Metros, Delhi Mumbai Industrial Corridor and Smart Cities and others. Mr. PM and Mr. FM are trying hard to bring foreign investments in these projects and they have been successful also. But, it too has limits.

We are getting some indication that Govt is trying fusion option. In bold step, we may see Jaitly expanding Fiscal boundary to accommodate Infra spend and all Govt machinery try hard to bring foreign investments. This was visible at Davos,too. Make in India was marketed very aggressively there.

Interest Rate Scenario

After keeping interest rates very high for long-long period, we could contain inflation. Yes, Commodity price decline has also played its role into it. And finally, Mr. Tough/ Wall – Mr. Raghuram Rajan( RBI Governor) has cut the interest rate by 25 basis points.

Change in the stance seems to have come from slide in Crude prices. The straight landing of Crude flight from $105 to $45 should have convinced Mr. Rajan that this is structural shift in Global demand and deflation will be greater threat and that should have prompted him to cut the rates. Domestically, too, He could see the Govt taking all necessary actions to increase the productivity and to boost the supply and at the same time reining in inflationary expectations by deregulation Diesel subsidy, small or no hike in MSP, approval of projects crucial to expand the supply side and promise to achieve fiscal deficit target of 4.1%.

I firmly believe that rate cut will become aggressive and it could be 100 to 150 basis points cut in this calendar year. The assumption and that has been highlighted by RBI, too , in its Financial Stability Report that Credit Demand in India has come down significantly from 21% to 9.6%. This shows that in last few years, People of India have either postponed buying or consumption decision or their income have come down and hence Credit limits. In both situations, it is very likely that demand will go down further and that will prompt asset price correction. We are already hearing of large inventory in Real estate sector in Metros and even price correction at some places.

I firmly believe, Real Estate will see major price decline in 2015.

Therefore, I expect Demand to slow down in India, too, in 2015. To stem the economic fall, Govt’s major thrust would be on Infrastructure spending, to generate large employment opportunities and to start the growth engine.

With above assumptions,

I believe one should keep investing in Equities through Mutual Fund route(so that portfolio remains adequately diversified). I recommend to invest SIP(Systematic Investment Plan-Monthly fixed investments)way in Mutual Fund not lumpsum.

One should also have exposure to Precious metals(Gold & Silver).

One must have reasonable proportion in liquid assets( Cash Management fund, liquid fund).

One must have some investments in log term Govt Bonds(GILT), which goes up as Interest rates are cut.

I wish Wealthy and Prosperous 2015.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 288 a15

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

Dec9

Update on G-sec

Posted on December 9, 2014 by investmentacademy

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Dear Investor

After long 1 year, Clients are now having double digit absolute returns between 11% to as high as 19% and annualised returns ranging from 7% to 12% in their G-sec investments.

View is very clear now and everyone is chasing G-sec now.

The complete cycle, I expected to unfold, got delayed by a year and all factors I expected are converging now. Commodity prices are coming down, GDP world across has been falling past 1 year except US and to some extent UK. Not inflation but deflation is a problem in most part of the world now. Gold and Crude prices remained in downtrend for past 1 year.

In anticipation of fall in above factors, I had advised to invest in G-sec.

What should G-sec investor do?

I believe, He should remain firmly invested in G-sec for entire 2015. Entire world is gearing in expansionary mode. Japan even after repeated attempts to stimulate growth through monetary easing, doing it again aggressively. Europe is now at the place, where US was towards end of 2008, When US FED started buying assets directly from companies, deleveraging broader economy and leveraging its balance sheet.

China resisted initially but as it feared that downturn in economy is real and could slip further, it started monetary easing last month with rate cut. China also lifted one house policy to bail out housing industry.

US is expected to start raising Interest rate from 3rd Quarter of 2015 but if Dollar continue to strengthen as it is likely, Fed will postpone it to 2016. With fall in Commodity prices, it is even harder for Fed to achieve 2% inflation target at current policy. Some are expecting resumption of easing by end of 2015 to achieve inflation if it remains muted for most part of the year.

Above economies, put together, constitutes 70% of world economy.

Indian economy has, too, started feeling the pinch of slowdown. Festive season remained muted for Auto and FMCG companies. Manufacturing is still not picking up. Elevated prices of real estate still refuse to moderate. But, underlying current has weakened. It reflected in credit take off from banks. Credit growth of banks came down to 9% from 15-16%. Even much claimed FII investment in Equities is at half the level of last year.

In all, what I want to emphasis on is, World has still not recovered from shadow of 2008 crisis. Demand is still considerably down. Overcapacity is visible in all most all sectors of economy. World can still fall back into recession.

Therefore, it is prudent to be (diversified) invested in 4 types of assets. 1. Which goes up when inflation is more than expected 2. Which goes up when inflation is less than expected 3. Which goes up when growth is more than expected and 4. Which goes up when growth is less than expected.

I will write on it in detail sometimes next month.

On Rate cut cycle

I expect, rate cycle will be much faster than it is expected. With the pace, commodity prices are coming down, with the pace world growth is dwindling, with the pace every nation is entering into expansionary mode, keeping cost of money low is inevitable to sustain economy.

I expect most of the rate cuts should take place in 2015. By the end of 2015, Investor should have double digit annualised returns reaching as high as 20% annualised and 30-35% absolute returns.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

Sep24

Update on Equity, G-Secs and Precious Metals

Posted on September 24, 2014 by investmentacademy

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Dear Investor

Aha!! What a stupendous rise, Indian Market has given in last few months.!!! Truly, those who continued to invest amid pessimism( before election. Believing, in loge term, Indian Equity has potential to deliver) are now sitting on 40% to 150% returns.

I believe, this is how equity market compensates waiting period and put investor back on 15-18% annualised returns(tax free).

There is great optimism in market and economy. Huge flows are waiting to pour in India. Big bang announcements have happened and are expected to continue in time to come to ensure Indian Economy again ride on 8-9% growth rate.

Prime Minister Mr. Modi is about to announce slew of measures tomorrow ahead of his US visit ensuring to world that doing business in India is less cumbersome and easy.

One more side note of Economic Times worth mentioning at this point – Chidambaram is confident that India will be growing at 8-9% in next 2 years.!!

Across the world, there is a great sense of optimism about India’s rise from ineffective governance, policy paralysis and red tape to effective governance, red carpet and solid reforms. Mr. PM’s extensive travel and emphasis on this agenda has sent powerful signals.

Our Equity market at home has decently factored in this optimism. Equity market has given descent returns in last 6-8 months and is now trading at the level, hardly thought of before election.

But, I do not see wider participation. Even those, who are participating, are putting just marginal sum. Some have their portfolio still down 30% -50% even after decent rise(Those who invested in 2007-08 in Infra and Real Estate etc…).

It is also interesting to observe that if this is the initial(first) phase of rise of long term Bull run, as claimed by many analysts and researchers, then the kind of Euphoria we are seeing around( in Equity market) should have not been there. IPOs getting subscribed 60 times and on listing gains reaching 70% high. On Average, NFOs of Mutual Funds are collecting Rs. 700-1300 cr. First, 25000 then 27000, now 30000 and some are even forecasting 60000 level of Sensex, in next 3 years. I don’t doubt the strength and long term potential of our Equity market. But, we have hardly seen such Euphoria in very first phase. Initial phase of Bull market is always filled with scepticism. Retail Investors hardly participate in first phase.

It is prudent to ask some questions to ourselves

Will equity market continue to rise uninterruptedly?

Will not Global Markets correct after 4-5 years rise and thus our market, too?

Is rise in Dollar Index a sign of capital hiding behind stronger currencies and treasuries?

Let me start with, what BIS Said–

In its Annual report, BIS ( Bank of International Settlements) said:

“ The global economy has shown encouraging signs over the past year but it has not shaken off its post-crisis malaise. Despite an aggressive and broad-based search for yield, with volatility and creditspreads sinking towards historical lows , and unusually accommodative monetary condition, investment remains weak. Debt, both private and public, continues to rise while productivity growth has extended further its long-term downward trend. There is even talk of secular stagnation. Some banks have rebuilt capital and adjusted their business models, while others have more work to do . ”

“ To return to sustainable and balanced growth, policies need to go beyond their traditional focus on the business cycle and take a longer-term perspective – one in which the financial cycle takes centre stage. They need to address head-on the structural deficiencies and resource misallocations masked by strong financial booms and revealed only in the subsequent busts. The only source of lasting prosperity is a stronger supply side. It is essential to move away from debt as the main engine of growth.”

BIS is strongly discouraging to solve debt crisis with more debt. But, it seems, Central Bankers are, decided to keep easing unless growth returns. It is also surprising and equally shocking when European Central Bank Chief says ” ECB will do whatever it takes to spur the Growth” after 5 years easing. A drug has not worked on patient for last 5 years, Doctor decides to increase the dosages further!!?

Equity Markets and Dollar Index:

US market is in uptrend for last 5 years and so has been the European markets too. It seems very likely that in next 1 year, US market will give no return and more likely negative returns with fall of 15-20% from current level. It looks very likely that Dow Jones will come down to test lower channel at 14000, from where it rose to current highs.

Fundamentally, too, there are reasons

1. After 6 years of easing and expanding balance sheet from $1.2 tn to $4.4 tn, FED is finally winding down.

2. With FED pulling out liquidity, Dollar Index has started rising. After 12 years downtrend and consolidation, it seems Dollar is now heading up for quite a long period, at least 1-1.5 years.

3. With FED withdrawing stimulus, US economy will take initial hit as now onus of levitating economy at higher altitude will be on the shoulders of private companies and market participants. They will sure need time as many of them have still not recovered from crisis and others have still leveraged balance sheet as BIS quoted in Annual Report.

4. Geopolitical tensions has dragged USA into war, which is right now limited to airstrikes and missiles but if widens, USA may participate with ground presence.

I do not think there is any need to justify that European economic growth is very weak. European Central bank cut the benchmark rate from 0.15% to 0.05%. ECB has already announced negative interest rates for Banks last month. If European Banks will keep access capital with ECB, ECB will not pay any interest on that instead will charge 0.15% to banks for parking with ECB and not lending to the people and Businesses.

Even after historical low interest rates and unprecedented negative interest rates, ECB could not lift up the economy. Recent, PMI and Sales numbers were quite below to the expectations and affirms the continued downtrend in European economy.

India Equity Market:

Indian equity market is in strong uptrend. Valuations are now rising above the long term PEs. CAD has been contained under 2% and inflation has cooled off. Recent GDP figure enthused market participants but following IIP data poured cold water on it. I think, we need to understand 3 things at this level.

1. In last, a few more than, 100 days, Mr. Modi Govt has announced many growth centric measures and promised reforms. I believe, they will continue this reform process as entire economic structure, laws, policies, governance and functioning of Govt needs radical reforms. Therefore, this is not a one day or one month process but continuous process for a long long period. But, it takes time to implement what has been announced. Promised action, reform or change in policy has to pass through many of Central and state level bureaucratic layers to get effected in public domain. This process usually takes 6-8 months. Therefore, I believe Market may consolidate at this level for some time with some correction in line with Global markets and will wait for real actions and execution at ground level.

2. But, I do not recommend to stop investing as market is known for nasty surprises on both sides. Investors should continue investing in line with what Mr.PM and Mr. FM have said. Immediately after swearing in, both said that our 5 years term will be like 2 years repairs and 3 years growth. As we know, Mr. Modi has been very consistent in following and executing what he promised. His speech before election, during election, in manifesto, after sworn in and on Independence day, speech(agenda and focus) has been the same. Hence, one should continue allocating during this repair in small chunks and complete your equity allocation by December, 2015, then wait for 3 years Growth ride.

3. India has been passing through high interest rates environment for last 4 years, effect is partly visible, now, as Inflation has cooled a bit, Rupee has stabilised and some moderation in demand. Credit offtake of Banks dipped to below 10% after many quarters, which usually hovered around 14-15%. Any rate hike or cut takes usually 6-8 months to percolate in economy. Past 4 years hawkish( anti inflationary policy – wherein interest rates are tightened )policy will continue to weaken demand, lesser employment opportunities and companies coughing off substantial portion of profits towards interest cost payment.

Thus, caution should be exercised at this level. Recent market movement resembles to last phase of last bull market(2007-08). Large swings have been seen in last few days instead of firm and steady rise.

I advise clients not to allocate large sum at this level but can continue to invest through SIPs with horizon of 5 years in diversified equity funds.

Indian G-Sec market:

G-sec market has gone through very high volatility in past few years. But, recently, it looks stabilising. With strong action and communication, RBI has ensured that Rupee stabilises around 60 with broad band of 58-62. RBI has also increased foreign reserves during FII and FDI inflows thus ensuring enough reserves to safeguard Rupee during exodus.

Globally, Inflation is cooling down with WTI Oil trading around $96. Iron ore, Copper and other industrial and precious metals including most of the Agri Commodities have been softening for last few months.

Very interestingly, recent reports of Bank of America and last year report of Citibank points at 5 years downtrend of commodities. The major reason cited is US energy developments. US has found enough oil and gas on its soil to satisfy domestic needs and talks are rounding on exporting oil, now. It is visible in Oil price trend, too. Though Oil producing nations( Iraq, Syria, Libya) are at war, though sanctions have been imposed on Oil producing nations(Russia and Iran), Oil continued to drift lower. Recent OPEC meeting concluded that demand of Crude Oil will remain low with possibility of further dip in demand.

Therefore the major concern of RBI to contain inflation and inflation expectations will have some external help too.

Economic Times reported–

“Sensing these macro improvements, FIIs have poured in huge money in G-sec market in last month exhausting $5 bn limit for them. Good part is, this time investment has been done in longer term maturities extending upto 28- 30 years. Central bank of Norway( Norges Bank)is among the largest debt market investors across the world having forex reserves of 3663 bn Norwegian Krone along with Canada based Pension funds have been lapping up G-secs.”

“Last month, foreign fund Franklin Templeton had bought bonds worth about Rs. 16,000 crore in the largest single day purchase of Indian Govt securities.”

Hence, I believe, G-Sec market should stabilise now. Though, it seems rate cut will not come before 2015. But, we should be reminded off that Central Bank do not change its course of action oftenly. Hence, once rate cut starts, cycle will run for next 1-3 years rewarding enough for the waiting period of last 1-1.5 years.

Gold and Silver:

Gold and Silver have corrected significantly. As expected, Silver is now close to Rs. 39000.

I would wait till month end to decide what to do further.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

May23

Buy Silver

Posted on May 23, 2014 by investmentacademy

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Dear Investor

I am writing after long time. I hope you all are well and doing good as “ Achche Din Aa Gaye Hein”.

This short note is just to inform that this is a good level to buy Silver. Both for Indian investors and international investors.

In India it is trading near Rs 40,900 and in International market it is trading around $19.5.

I asked to exit from Silver in 2011 and since then I was waiting for Silver to bottom out. I think, we are there. As a speciality move, Silver has sometimes given sharp down swing before first leg up and in that process Silver may swing down to 38000 and in worst case 36000 for a day or two.

Nonetheless, I strongly recommend to start buying Silver at this rate. If you have 100 rupees for Silver, you can invest 40-50% at this rate.

Do not relate Silver with Gold this time as Silver has wide industrial use, Gold does not. 54% of total Silver production is used for Industrial use. Therefore, you can understand as economies world across recovering, can increase the use of Silver. Further you do not need the factors like currency devaluation, inflation, Sovereign issues, geopolitical tensions which normally are pre requirement for Gold to rise.

Soon, I will write in detail.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

Dec27

Where to invest in 2014? Real Estate? Equity? Precious Metals? ….

Posted on December 27, 2013 by investmentacademy

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Where to invest in 2014?

Real Estate? Share Market? GOLD & Silver? FD/Bonds? Or Cash?……??

2013 has remained highly volatile. Let us review few important instances of 2013…

Ø On 1st Jan, 2013, Sensex was at 19,580 and as we are near to year end, it is trading around 21000. Less than 10% gain in a year, a flat year for the market.

Ø India GDP dipped to decadal low of 4.4%.

Ø Indian Rupee dipped to low of 68.80 raising concerns of instability in trade and commerce.

Ø Govt bond yield dipped to 7.25% and rose back to over 9%.

Ø Inflation (WPI) fell to 4.58% from high of above 8% for most part of last 2 years. But, that bottom proved temporary. Inflation pulled back to range of 7-8% range of past few years.

Ø Gold prices made low of close to Rs. 25000, then went up over Rs. 32000 and now trades near Rs. 28300. Internationally, Gold price is 40% down around $1200 from high of $1920.

Ø India also witnessed many reforms in last year. FDI in retail was such a momentous decision. It took many sessions of parliament and vigorous efforts of Govt to pass it but even after long time, it did not receive any proposal.

Ø New Governor Raghuram Rajan soothes both the markets-debt & equity, contains rupee fall, takes dynamic steps to bolster financial market.

Ø Rating agencies downgrade India one notch above junk status and warns India, if Current Account and Fiscal deficits are not arrested, it will downgrade India to junk status.

Therefore, as we enter in 2014, we have hard pressed memories of high inflation, high real estate prices, high gold prices and high interest rates of 2013 in mind. Probability of trend reversal in these asset classes are very high in 2014.

Hence, the question resurfaces is

Where to invest in 2014?

Which investment carries higher safety and security in year 2014?

Which investment will outperform inflation in year 2014?

Let us assess each of asset class….

Real Estate

Real Estate is driven by Capital. At height of bull period, real estate capital gets into below vicious circle.

Vicious Circle of Capital

Capital Pushes the Prices Price pushes the land cost Requirement of Capital elevates the construction cost

Price Pushes Consumers away Investors with surplus money roped in Results in construction delay

Capital fails to generate the returns.

From common man to High Net worth Individuals, analysts to professional and builders, all agree that prices in Real Estate sector has zoomed to the moon, far from affordability.

Below Chart shows difference between Price and Affordability in MMR(Mumbai Metropolitan Region). Same picture mirrors in rest of the markets.

The widening gap between the prices and affordability is pointing towards the speculative market practices. Even if the interest rates comes down to 9% level, still the prices need to undergo correction to the extent of 33% to attain the efficiencies of June 2009 . – From report of Liases Foras

Today, Two views are prevailing in Real Estate market. First Bull period is over in Real Estate and Second Real Estate will see recovery post General Election. Ironically, in both the situations, possibility of earning from real estate is insignificant in 2014.

In 2014, few factors will resist price rise in Real Estate sector. They are…

v In 2006, the median Home price was 5 years median salary of an individual, that has reached to 12-15 years median salary now. Main culprit is inflation. In last few years, inflation has outrun the wage hikes and median salary rise(increments) and that has created large gap between price and affordability. Inflation was benign in 2004-2007 years.

v In 2014, huge money will flow out of Real Estate market towards election funding.

v Interest subvention scheme(80:20) has been banned by RBI. That helped to create artificial demand for some time in past year.

v Now, there are more sellers than buyers in market,. There is inventory overhang of 2-3 years in top 7 cities in India. (NCR, Mumbai, Chennai, Banglore, Hyderabad, Pune, Kolkata)

v New Governor is destined to disinflate markets contributing inflationary expectations.

v As per the report of Liases Foras, by end of 2012, 52% sales of properties were sold to Investors. Historical data shows us that in any real estate market when more than 50% of sales are absorbed by investors, it is a signal of coming downtrend in sales and prices. In immediate preceding year of Dubai & US real estate crash, investors owning assets out of total sales, had reached to above 50%.

v 31% of projects launched in past 12 months have already witnessed deferred possession dates compared to their earlier made commitments

Let me also present some quotes from recent Real Estate report published by Liases Foras & other inputs

“This has been one of the worst years in the realty sector… sales are down, inventory is high and prices have peaked,” says Pankaj Kapoor, managing director, Liases Foras, a real estate research firm. “There is a wide gap between affordability and pricing, which is why sales are not happening. There is no oversupply. It is just that supply has out-priced consumers.”

The absorption for the January-September 2013 period declined by over 11 per cent, according to the data provided by research firm PropEquity. Out of the committed supply for this year, only 46 per cent was delivered till September.

Inventory had never earlier been as high as this year. At the end of the second quarter this year, says a Liases Foras report, the Mumbai Metropolitan Region had an inventory of 58 months(Close to 6 years), NCR 41 months(Close to 5 years), Hyderabad 32 months(Close to 3 years), Pune 31 months and Bangalore 30 months. (Inventory denotes months required to clear the stock at the existing absorption pace. A healthy market maintains eight months of inventory.)

In an attempt to build their image, developers, whose credibility has been hit by delay in deliveries, have been focusing on advertisements this year. “Property and real estate witnessed 30 per cent growth in TV advertising during January-June 2013 in comparison to January-June 2012,” data by Television viewership measurement agency (TAM) show.

Read articles and reports, if interested in details..

http://www.business-standard.com/article/companies/real-estate-rebound-on-shaky-ground-113122500778_1.html

http://www.liasesforas.com/Reports/CapitalDrivenRealEstateanditsconsequenses.pdf

Therefore, I believe Real Estate is the sector you should avoid for investments in year 2014. Not only it will underperform but there are potential chances of negative returns to the tune of -20% to -30%.

Gold-Silver

After eleven years bull period, 2013 will be the first year for precious metals to close in red. It will be interesting to watch bullion market in 2014.

I recommended Gold in 2007 when it was trading around $700 and asked investors to exit when it reached above $1800( In Indian Rupee it was around Rs, 28000). Since then, I am bearish on Gold, expecting at least $1100 before next leg up.

You can read my past articles on Gold on my below blog links..

https://investmentacademy.wordpress.com/2008/09/08/lets-learn-from-crude-to-gain-from-gold/ – when I started recommending Gold

https://investmentacademy.wordpress.com/2008/09/05/over-sixty-economists-agree-gold-headed-above-2200/ – over 60 economists expected Gold to surpass $2000 level

https://investmentacademy.wordpress.com/ – refer my latest recommendations on Gold

Broad participation in Gold market started from 2007-08 and still continue to be, though at lower pace. But, it looks that fundamentals are weakening to support Gold-Silver’s uptrend.

Upon inspecting Gold’s historical bull runs, we find that under following circumstances Gold-Silver performs…

When Inflation is high

When Govt looses people’s trust and confidence in Govt.

When currency depreciates more than expected and destabilises nations’ economy

When nation is at war

When Central Bank prints too much money relative to the historical and economic growth standards.

There could be more reasons, too, but above are chief of them.

Above parameters somewhere in play since 2008 and were supporting Gold’s bull run. But, their strength has been weakening for some time now.

In developed world, inflation is less than 2% even after unprecedented printing, economies of western world have stabilised, showing slow & gradual recovery, confidence in Govt has been restored to some extend in developed economies and war situation between North Korea and South Korea and Iran-Israel have been averted at least for some time now. These developments have caused Gold to fall 40% in last 1 year and still continue to be in downtrend.

Gold may breach $1100 level but somewhere in 2014, I believe Gold will bottom out.

Hence, in 2014, Gold will either fall further or will remain in range.

Canadian Imperial Bank of Commerce expects Gold to fall to $1000 level from here, Goldman Sachs targets $ 1050 and Standard Chartered, UBS and Citi estimates it to be $1200-$1250.

Broadly, Gold and Silver does not have much to offer to investors in terms of returns in year 2014.

http://www.business-standard.com/article/markets/gold-prices-finally-fell-in-2013-113122500530_1.html

http://economictimes.indiatimes.com/markets/commodities/gold-falls-set-for-biggest-yearly-loss-since-1981/articleshow/27796424.cms

http://www.business-standard.com/article/markets/gold-imports-likely-to-drop-40-to-500-tonnes-in-fy14-113111700214_1.html

http://www.business-standard.com/article/markets/global-gold-prices-likely-to-drop-further-in-2014-113122600198_1.html

Equity Market

Yes, after several attempts Sensex is back above 21000 level but portfolio of investors are still 40-50% down from last 21000 level seen in Jan, 2008.

Question is, Should we invest at this level?

Actually, discounting last 5 years inflation in Sensex, it should be anywhere around 30,000-33,000. It means, if Sensex reaches to around 30,000 level, it can be said that now Sensex has reached to 2008’s 21000 level.

Will Sensex reach to 24000? 28000? 30000?

It is very difficult to say, whether market will continue upside and will conquer 24000-28000 levels or not in 2014. But, I can say with confidence that we do not have yet proper conditions for sustainable bull market. For sustainable bull market, you should have low inflation and low interest rate. At present, both parameters are on opposite side.

Low inflation leaves higher disposable income in the hands of consumers and lower interest rates induce buyers to purchase capital assets. At present, higher inflation is leaving no or minimal surplus income to consume additional and higher interest rates are discouraging buyers from purchasing capital assets.

Therefore, it seems unless inflation cools and interest rate comes down to the level, where it generates risk appetite to start new businesses, employ more capital, expand capacity and enables higher consumption, market will keep gyrating in broad range. It may go up to form new and all time highs but sustainability will remain a question.

The best option is to keep investing small amount through SIP in large cap funds. But, do not invest lump sum in Equity at this level.

Selectively, I expect, after long downturn, commodities like Sugar and Coffee have prospects to outperform other assets in 2014..

Now, we are left with a question, where to invest in 2014?

I believe, 2014 is a year where safety and security will precede other parameters. Safe- money invested in sound company/asset/fund and Secure- the instrument of investment is liquid, redeemable.

Therefore, I recommend debt products this year. It includes Fixed Deposits, Bonds(many Tax Free bond issues are on offer), Secured NCDs.

But, the best option is short term bond funds of Mutual Fund, they are dynamic in nature.(i.e. they intend to offer accrual income but when interest rate falls, they have flexibility to capitalise gains).

Current YTM(annual return) is around 10.50% from short term debt mutual funds, it is quite higher than offered by Fixed Deposits coupled with tax benefit.

I prefer Debt Mutual Funds over Fixed Deposit from 2 perspective. One Debt Mutual Fund attracts lower tax(Flat 10% long term capital gains tax(after 1 year) or 20% with indexation benefit, in both the cases tax liability comes far lower than Fixed Deposit) and Second it does not deduct TDS.

Capital Protection Funds also look attractive from here. I will write on that shortly.

Please feel free to ask question…

Products on offer

Product	Interest RateUpto	Monthly	Min. Inv	Opens on	Closes on	Tenure	Tax Status	TDS	Rating	ListingOn	Registrar
HUDCO Tax Free Secured NCB -II	9.01%				10-01-2014	10 yrs	Tax Free	NO	AAA
IIFCL Tax Free Bond	8.66%		5000	09-12-2013	10-01-2014	10 yrs	Tax Free	No	AAA	BSE	Karvy Computer
HDFC Recurring Deposit	8.75%		2000			12-23 months	Taxable	Yes	AAA
	9%		2000			24-36 months	Taxable	Yes	AAA
HDFC Double Money Plan(Doubles Money)	9.15%		20000			95 months	Taxable	Yes	AAA
NHB Tax Free Bonds	8.51%		5000	30-12-2013	31-01-2014	10 Yrs	Tax Free	NO	AAA	NSE	Karvy
SREI Infra Secured NCD	11.50% \|11.75%		10000	30-12-2013	31-01-2014	3years \| 5 years	Taxable	No	AA-(Stable)	BSE,NSE
Indian Railway Tax Free Bonds	8.48%		5000	06-01-2014	20-01-2014	10 Yrs	Tax Free	NO	AAA	BSE,NSE
Network 18 Fixed Deposit	11.96%		10000			1 year	Taxable	Yes

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

Nov25

Why you should add G-sec at current yield of 9%?

Posted on November 25, 2013 by investmentacademy

Standard

Dear Investor

As you know, I had recommended G-Sec investments around March-April of this year and I had expected it to return 17% to 22.5% in 1-1.5 years. In immediate following months, RBI’s policy was on expected line and in mere 3 months, portfolios were having returns of close to 6%. But, mid of July things changes quite dramatically. Without prior hint, previous RBI Governor raised short term (MSF) rate by 2% and that spooked G-sec rally in one day. Portfolios were square to 0% in 1 day. Since then, G-sec portfolios have been either in red or with marginal 0.5% to 1% gain.

What are my expectations now?

My expectations were based on few parameters. 1. I expected GDP to come down 2. I expected RBI Governor will emphasise more on growth vs inflation as inflation is more due to supply bottlenecks 3. I expected Gold and Crude will fall further easing inflation pressure and thus giving room to RBI Governor to promote growth. 4. New RBI Governor(Mr. Raghuram rajan) will act aggressively to promote growth and thus will cut rates.

Let us look at Numbers now.

· Jan-March GDP was 5.5%, the latest GDP number came at 4.4%. Full 1.1% lower…

· March inflation(WPI) was 7.28%, it dipped from there to 4.58% and then bounced back to latest number of 7%. Inflation remained around 10% and above in most of 2011 and 2012. Hence, when G-sec was recommended it was coming down from top of 10% after 2 years of consolidation. It is to be seen now, whether it sustains high level and scales up to 10% or it is mere tail effect of Govt and RBI policy and as statistical effect wanes, it declines.

· Gold was trading around $1550 in March, today it is at $ 1230. The Euphoria which was around Gold has also waned.

· Crude was around $97 in March. It went up from there but did not sustain and now trades at $93.

Meaning, numbers are still supportive of the expectation.

RBI Governor is concerned about inflation only at this time and we have discussed in past about factors contributing to inflation. Fiscal and Current account deficit were responsible for higher inflation. Gold and Crude contributed to higher inflation number. As both commodities are coming down( net demand of Gold ,too, has come down), in next 3 months, it will ease the pressure on inflation.

Let me also present some content from HDFC Mutual Fund newsletter. Incidentally, I received mail from them while I was writing. G-sec yield was 8% when I recommended, it is now around 9%

“”Dear Associate,

Pls find attached 10Y GSec Yield since 2005. Some interesting observations as under:

Total number of observations – 2180
No of times 10Y GSec has traded above 9% – 40
Ratio – 40/2180 ~ 2%
Out of 40, 32 times it was in 2008 during global crisis and balance 8 times in 2013 largely due to combination of domestic macro-imbalance arising out of high inflation/ twin deficit and news of tapering in US

It is worth noting that:

FM is on record that CAD shall be lower at US $ 60 bn in FY 14 as against US $ 88 bn in FY 13. The initial trade data released corroborates he guidance.
With Govt committed to meet fiscal deficit target of 4.8%, going forward supply of gilts may reduce
RBI has been resorting to OMOs to infuse liquidity into the banking system which shall cap yields on upper side
Already, RBI’s FCNR deposit scheme has netted close to US $ 20 bn thereby improving our FX reserves
Prospects of Indian gilts entering EM bond index (as per newspaper reports) may result into fresh demand for those gilts that are part of benchmark (normally 10Y GSec being most liquid)
With advent of khariff crop, inflation is likely to moderate in 2014

Against the backdrop, investment in long term gilts can be considered as it offers in-built margin of safety at current levels. We have a product HDFC Gilt LTP that offers exposure to long term Gilts and hence can be considered under the circumstances. ””

Therefore, I recommend to remain invested in G-sec. Though expected return would not accrue in expected time of 1-1.5 years and it will take 6-9 months additional time for the same. But, returns expectations have gone up against that as now yield will drop from the height of 9% or 9.5% and will accrue better returns.

Those who can add more funds in long term G-sec, I recommend them to add more at this level, leaving some gap for 9.5% yield, if inflation persists through March .

If you have not invested in G-sec, it presents excellent opportunity to invest at current yield.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Jul24

RBI’s Measures- Too little too late

Posted on July 24, 2013 by investmentacademy

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Dear Investor

RBI suddenly woke up last week from deep sleep and realised that something went wrong. Then in Hoch poach, decided that now, we should take control of the market and should stop Rupee’s further slide, as if they were comfortable till 60. In hurry, they announced measures to tighten the liquidity, also directed Banks to reduce exposure to currency futures and SEBI also took strict measures.

Indeed, it was futile effort. B’caz second day, RBI official conveyed that RBI will let market to determine Rupee value and they just want to curb volatility. You took steps first day and tried to reverse it second day with statement!!

I have been writing since end of 2010 that RBI is behind the curve and that is forcing RBI to take actions which are not in interest of the economy and nation. RBI was late in hiking of rates at first place and that compelled RBI to raise rates to the tune of 8.50% in 2012, while with real rise in economy in 2007, RBI could contain inflation with mere 7% interest rate(Repo). Does this not show the inefficiency of policy measures?

Let us come straight to the question – Will RBI raise rates from here or will slash?

Some data first. Because, Data will determine RBI’s further action.

WPI inflation is now at 4.86%, more than 50% down from above 10% in 2011-12.

GDP is at 4.8%( last quarter) lowest of the decade.

Current Account deficit stands at 4.8% of GDP. Highest of last 3-4 decades.

External Debt has risen 350% times since 2004, stands at $ 350bn.External Debt has more than doubled since 2008.

Industrial Production index oscillated between 5% to 10% between 1994-2010. But, between 2011-2013, it is fluctuating between -5% to +5%.

Business confidence index reading has mostly stayed above 60 since 2005. But, since last quarter of 2011, it has been in the range of 48-52. Below 50 indicates contraction and above 50 indicates expansion.

Personal Savings rate has dropped to 9.3% from high of 23.15% in 2010 and average of 16.5% between 2004 to 2010.

RBI’s own findings of Industrial Outlook Survey-2012-13

Demand conditions in the manufacturing sector weakened during 2012-13, as reflected in the drop in production, weak new orders growth, declining capacity utilisation and subdued exports and imports.
The optimism on financial condition also showed some moderation with overall financial condition moderating and availability of finance remaining stagnant. Cost of external finance is perceived to rise, though by a lower proportion of respondents as compared to a year ago.
Profit margin continued to remain negative during the year and dropped further during Q4: 2012-13.
Cost of raw material continued to rise whereas sentiments for rise in selling price declined indicating lack of pricing power.
Business Expectation Index (BEI) based on assessment moderated during the year and in Q2:2012-13 reached a level seen at the onset of financial crisis in Q3:2008-09. The BEI based on expectations has been declining since Q3:2010-11 and remained more or less flat during the year.

Above data doesn’t need elaboration. It paints very grim & gloomy picture. Economy is in deep trouble. Those companies having high debt burden(domestic or external) are facing severe problems.

At home, Interest rates are up hence deleveraging is not happening and those raised money from international market, are in bigger trouble. Those firms, borrowed in dollar when rupee was 50 or say 55 will have to shell out 20% and 10% more respectively just to make up rupee depreciation difference, apart from interest.

That could be one of the reason, companies are establishing subsidiary or launching new projects outside India(mostly in developed world). Because, interest rates are low in developed economies and it helps them to avoid currency volatility.

RBI acted on 16th July by hiking rates as if they were comfortable when Rupee breached 50 and further 55-57-58. Please excuse me but RBI Governor should have courage to take bold actions.

Hence, it is very clear RBI is in no position to increase rates even if it chooses not to slash.

Now, let us focus on how to come out of this recession….what measures can ensure us a growth back on table…

What is the way out?

One word answer is “Growth”. Solution of all problems lie in Growth. Some fear that it will give way to inflation to rise back to double digit zone. But, Inflation is just not because of demand, it is because of supply problems in most of the cases. Vodafone was charging Rs. 16/minute but when competition increased and more telecom companies were allowed, though inflation went up, though rupee depreciated but call rates have continued to fall. Wherever Govt has freed the sector, cost has come down, it has not generated inflation.

But, it took years for Govt to allot mining and oil exploration licences. Sunil Mittal, Posco have decided to withdraw. Farmers are paying very high prices for fertilizers because we had no or very limited capacity expansion in fertilizer industry in last 2 decades. Just to raise tax revenue of Rs. 18000 crore from one company(Vodafone), Govt brings in the rule with retrospective effect which in turn makes FII to withdraw and new entrants to delay investment decisions.

But, All know and are convinced that once India starts clocking around and above 7%, FII,FDI, Dollars will start salivating and flock back to India market. Who does not want pie of our market? We are one of the largest market of the world. Marc Faber is highly recommending India to his clients in Asian region.

But

How to bring back Growth?

Cut the interest rate. There are no free lunches in the world. For Economy to grow and to alleviate people from below poverty line, to increase supply of goods and services, to meet demand issues, to ease budget deficit and thus revenue deficit, to address current account deficit and last to save rupee, the only Solution is to cut interest rates sharply as soon as possible.

At the bottom of the crisis, US decided to cut rates sharply and to keep it there for extended period, that forced capital hiding in savings account, offshore, foreign investors, companies and investors to flock back to equity, commodity market. That increased fund flow, improved confidence of investor and consumer. Not only that, US could address current account deficit problem and could alleviate concerns of its ability to service external debt. We have similar problems. Yes, some may argue that Dhaval, US is developed and large economy while India is small economy. Middle of ocean, when cyclone hits, whether you have large ship or small boat, both should try to come out of cyclone. Was that right way or wrong discussed only if you are saved.

It is not less than cyclone when GDP is at decadal low, Industrial production, too, at decadal or two low, current account deficit at all time high and business confidence is at bottom.

Yes, there can be a argument that Dhaval, rate cuts will immediately drive Oil and Gold consumption to higher level and that will widen our trade deficit and that will put pressure on rupee !!

No, previous episodes do not suggest that. Even 2008 event does not support this argument. Even our own experience of last 1-1.5 years differs.

Say for Example – RBI cuts rate tomorrow by 1%. You will have immediately huge dollar inflow in both Equity and Debt market. Those funds, FIIs, and SWFs sitting on sidelines waiting for an opportunity, will rush to invest. We will have very good dollar flow to tackle our current account deficit and that will drive rupee up. Now, on other side, the fear is, would that not drive consumption up immediately? No, because, when RBI cut rates, Banks are not forced to pass it on imminently. Banks take 3-6 months and recently though RBI has cut the rates by 1.25%, Banks have passed on only 0.50% to consumers. Meaning, Banks will take time to start lending at lower rates. In between, you have 6 months to 1 year to align policies to stable the market and excesses.

US have eased its monetary policy to historical extend since 2008( since crisis hit)but if you look at US Dollar Index, it is still at the same level, where it was before crisis and before easing. In fact, it is up. Average of 2007-08 of Dollar Index comes around 77-76, when US was in middle of crisis and now it trades around 82.

Similarly, look at Euro, European crisis erupted in 2011-12. Average of 2010-11-12-13 comes at $ 1.35 and Euro trades at $ 1.32 right now. Meaning, European Central Bank has eased it monetary policy to historical extend but its effect on currency is almost negligible.

IN our own case, whenever RBI has eased, it has brought in foreign capital, it has driven rupee up.

Therefore, fear of currency depreciation on account of monetary easing is misplaced.

Technically, as I have written earlier, Rupee may trade between 58-62 for next 1-3 months and will form the top around this level. I do not see Rupee jumping to 65 and higher as talked by analyst at this point.

What are expectations?

I have no doubt in mind that there is only way to come out of this terrible period and that is rate cuts. Un till it is done, Economy will continue to languish at bottom, industries will remain in trouble and as data points suggest that consumption has started slowing, First time in decade, Car and 2 wheeler sales have come down, truck sales are down now for more than a year.

I do not expect Equity markets to scale newer highs and stay there unless rate cuts create favourable atmosphere. Results of Apr-Jun, 2013 quarter will sure reveal the pain in the economy.

In short, there is no better investment than Debt(Liquid, short term and Gsec), un till interest rates come down.

Therefore, stay invested in Gsecs and other debt –money market instruments with preparedness to bear short term pain.

Caution: If RBI delays the rate cuts and meanwhile Federal Reserve starts tightening aggressively, RBI will loose this easing opportunity and will have to raise rates to stop Global Capital flying out of domestic market, leaving our economy and market in shambles. Though Big investors, traders and insiders do not expect much tightening.

Hope: Coming September, Present RBI Governor retires and Govt is in no mood to extend his term. I hope, Govt will surely appoint someone whose thought process aligns with Govt and its agenda of 2014 election. To improve confidence level in the economy to face 2014 election, cost of money(interest rate) should be brought down. Hence, I am of firm belief, from September onwards RBI’s policy stance will favour Growth to inflation.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Jun27

Dhaval Shah – Rupee Near Top, Gold-Silver will continue to decline

Posted on June 27, 2013 by investmentacademy

Standard

Dear Investor

Summary

Rupee will top out in next 2-3 months around 60-62 level.

Gold and Silver are very near to targets of $1100 and $18.

Deflation is knocking door!!

Refer below 3 previous articles to better understand trail article:-

https://investmentacademy.wordpress.com/2013/05/27/dhaval-shah-major-trend-swings-in-rupee-equity-and-bullion/

https://investmentacademy.wordpress.com/2013/04/18/dhaval-shah-gold-revealed-how-to-increase-wealth/

https://investmentacademy.wordpress.com/2013/04/13/dhaval-shah-update-what-if-gold-crashes-to-1100-are-you-prepared/

In Detail….

Sometimes though you predict trends right, but you don’t feel good about it. In my last article on 27th May, 2013, I expressed my expectation that Rupee may hit 59-60 in coming months but frankly I was not feeling good about it. And that was one of the reason, though I expected Rupee to hit 62, I said 60 only. Because, Rupee above 60 is as big crisis as the recent Kedarnath flood and clout burst is. Rupee above 60 will devastate economy, will derail all reform measures Govt has taken post Sep, 2012. It will also increase chances of derating. Companies of all sort will come under tremendous pressure.

Your currency paints complete picture about nation and its economy. It exhibits strength and weakness. It is a barometer to measure Nation’s well being.

Rupee if remains above 60 for sustained period, it will bring tsunami effects on economy.

Good News

I expect, this is last leg of Rupee’s depreciation. Rupee may stay in broad and volatile range of 58-62. Yes, it is too big to call a range but volatility will not abate in time to come. For next 2-3 months, Rupee may stay in the said range and most probably will form top in this range. From there on, Rupee will start to appreciate. Some very aggressive, decisive and directed prompt reforms can save rupee in immediate time.

Why I expect Rupee to appreciate in time to come?

I have been expecting a bigger correction in Gold, Oil, Metals and Commodities, later on participated by equity markets, too.

As you see, correction in each of this asset class is in action. Gold is trading at $1230(as I pen this article) from high of $1920. Gold washed out gains of $700 ( 37 % )from the high. Silver has corrected badly following big brother. In India, for sure Rupee has saved Gold traders and Investors otherwise we should have been trading it at around Rs. 20,000.

Oil has resisted downfall. It dropped to $ 86 from high of $97 in April. But, it has recovered since then and is now trading around $ 94. I strongly expect Crude Oil to slide further, to test $84-86 once again and later on falling to $76 and $ 69.

Copper has corrected 33% from high of $ 4.48 to $ 3 in last 1.5 years and still continue to correct.

Aluminium has declined 36 % from mid of 2011 and still continuing slide.

Nickel has declined 53 % and continue to decline.

Sugar is down more than 50 % since mid of 2011.

Corn is down 28 % in last 1-1.5 years.

Wheat is down 30 %.

More or less story is similar across the asset classes. And, I expect further declines in all these asset classes.

In fact, in short, We are in deflationary cycle. Wherein prices of tangible assets (metals, commodities, bullions etc…) correct and currency appreciate. In India, that phase will begin in next few months.

As these asset prices correct, India’s Current Account Deficit will shrink. Meanwhile, Rupee depreciation will help to boost exports and collectively these activities will cause Rupee to appreciate.

Hence, if you were short on Rupee, now you should be neutral or should have minimum positions left for the target of 62.

I will update in detail on this topic next week.

Gold & Silver

Gold and Silver are very near to their respective targets, I have been expecting for last 1-1.5 years. Very soon, Gold should hit $1100 and Silver $18. To know, reasons of Gold’s massive decline, pl visit my previous articles on blog.

Paid Services

I request readers to join my Plateau-Mountain-Cliff Wealth Enhancement Services. Where in you will get my recommendations on India Equity, Global Equity, Gold, Silver, Crude Oil, Currency and Debt Market, all in one package. Click to read — https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

May27

Dhaval Shah-Major Trend Swings in Rupee, Equity and Bullion

Posted on May 27, 2013 by investmentacademy

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Dear Investor

Government Securities investment delivered 6% returns in less than 2 months, annualised 36%!!

Gold and Silver continues to correct as expected.

Rupee may touch 59-60 in next few months!!

Sell Banks, Banks will be proved worst investment for 2013-2014.

Cautious on Equity Market.

Dollar’s up move.

Summary-

I congratulate all those investors, who invested on my recommendations in March and April in Government Securities. They are reaping now 6% returns on their investment in less than 2 months, annualised 36%!!

Those who could not invest, have still an opportunity to invest as I have raised my expectations from min. 17.5% to min 22.5% in next 1-1.5 years.

Gold and Silver have continued to fall as I had expected and had wrote to you. Bottom is yet not in place and will take some more time to bottom out.

But, today I want to concentrate on Rupee and Equity market. I will also cover Banking Sector.

I expect Rupee to make new high(in valuation terms low ) against dollar. Rupee has showed resilience around 53 level and has bounced back strongly from there. If Rupee closes above 55 level on weekly basis, there are chances that Rupee will hit back 57 and may break historical records to reach 59-60 against dollar.

Dollar Index has moved up and shows that it can head up to 88 from current sub 84 level.

Large cap Banks are done with their valuation and now will head down for long period.

In detail—

About GSEC

I not only recommended but requested clients to take the benefit of large opportunity by investing in Government Securities fund, when neither it was talk of town nor even on analyst’s radar. More, It is very safe as we are investing in Government securities only and from tax point of view, it attracts only 10% Capital Gain tax post 1 year. Hence, it was win-win-win opportunity.

I expect RBI to cut rates further. Inflation has come down and with Crude and Gold correcting further, Current Account Deficit will also come down, giving comfort to RBI to reduce rate further.( In short term-next 1-3 months- due to Rupee depreciation, RBI may choose not to front load the rate cut and may go with modest rate cuts as happened in last 1 year). I expect RBI to reduce min 1.5% and max 2.25% repo rate from here. It translates into 15% to 22.5% returns from here onwards, which is still an excellent opportunity.

Therefore, if you could not invest, write or contact me soon.

Rupee

Rupee has been trading in a range for quite some period now. It is forming an ascending triangle with upside bias, which indicates – if rupee sustains above 55, there are chances that rupee may take out previous high of 57 and march into 59-60 territory, creating havoc among investors and policy makers.

Fundamentally, too, there are few reasons to worry about

1. Current account deficit is still very high, twice as large to the comfort zone. Our current account deficit was financed by large short term flow of FII money in Equity and Debt markets. As we know, this portfolio money is of short term in nature. Same FIIs did not buy India Story at height of valuation in 2008. They abandoned our shares, pocketing good sum of money and went to centre(Dollar), leaving our market in dust(66% down).

2. In last few months, Finance Minister has taken many reformative measures to stimulate the market but will FM be able to walk his talks? yet to be seen. Many reforms have found no response from investors side. E.g. FDI in retail.

3. I have been writing about Dollar’s strength for some time. Gold has tried to close above 84.05 but failed to close there. I believe, after Cyprus incidence and Bernanke’s stimulus tapering talks, capital has been hiding in US equity and cash, causing Dollar to go up and rest currencies down.

4. Technically, from June 2013, Rupee has been forming symmetrical triangle. It has recently given triangle breakout and now trading at 55.80. Looking at the strength of the break out, Rupee will easily inch up to 57 and if sustains there, I see strong possibility of Rupee scaling up to 59-60. Look at attached chart.

5. What is more worrisome is over valuation of US and European equity markets. Though, in recent times we have seen some data improvements in US but it is far from justifying valuations. Charts are showing unsustainable rallies in US and Europe and it may take 15 days to 1 month or may be some more time but it is very near to top and may give away upside in short time. When market in US and Europe will come down, for sure it will bring slides in Asian and Indian markets, too, causing rupee to reach 59-60 as FIIs will pull out.

Banks

Banks have been in limelight for some time and rightly so as this sector has driven rally in domestic markets. But, observation suggests Banks have reached to the height of valuations. And, Banks and Customers interest have inverse relation. When Interest rates go up, Banks benefit as their NII ( Net Interest Income ) goes up and during rate declines banks NII go down. NII is primary source of income for banks.

NII is net interest earned on lending after deducting deposit cost.

Between 2000-2002, interest rate came down from 12% to 4.75%, Banks ,too, came down with it. In 2008, Interest rate came down from 7% to 4.25%, Banks declined along with. Between, 2003-2008(Jan),(4.75% to 7%) Interest rates rose, taking Banks along with to new heights. Between, Mar 2009 till 2012, Rates went up(4.25% to 8.50%) , Banks too went up along with.

When interest rates come down, people borrow aggressively as low cost of money lures entrepreneurs and risk takers to borrow cheap to invest in new business, expand the business and host of other activities. Lending at bottom is not profitable to banks immediately but as rates go up, banks earn huge sum of money. E.g. around 2003-2005, when lending rates were very low, people took loan for many purposes. Post 2005, when rates started climbing, borrowers had to cough up higher instalments but for banks it was easy profit-higher NII. But, the same cycle turns negative when rates decline.

Gold-Silver

I expect Gold and Silver to remain down with possibility to hit $1100 and $18. I have mentioned reasons for slide in precious metals in my previous article. Refer the blog to read it.

Thanks

Regards,

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Apr18

Gold!!??, Revealed ! How to increase wealth?

Posted on April 18, 2013 by investmentacademy

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Dear Investors

I hope, all are cheered and celebrating twin benefits of recent market movements in Gold, Silver, Crude Oil and GSECs. One of the reader wrote –

“Gold is falling, congrats for beautiful analysis on gold.
Thanks that was very useful for me.”
-Venkat, Chennai

First, as expected and as you had been reading for quite some time now that Gold will fall to below $1300 and possibilities of settling around $1100 before final historic up move, has come true. I hope, you all took a chance to exit at higher price. I have written four times to you in past 2-3 months advising to stay away from Gold.

Second, GSEC funds are in lime light. Those invested in March till 1st week of April are having 1.5% returns on their investments. And, as I have been writing that after fall in Gold and Crude prices, call for rate cut will embolden and huge pressure will mount on RBI to change the stance from inflation to growth.

Declining price of vegetables pulled down inflation to over three-year low of 5.96 per cent in March, core inflation moderated to 3.5 per cent and food price inflation also eased to 8.2 per cent, which is likely to prompt the RBI to consider a rate cut in its annual monetary policy next month. Further pressure on RBI will emerge from lower corporate profit in Q4, continued lower IIP numbers and GDP continue to stay around 5% level or may be slipping further.

Therefore, I suggest if you have yet not invested in GSEC, do it now, you can write to me or contact me.

What is the big idea or reason behind, assertively, suggesting GSEC ( Government Securities(Bond)) investment?

This is stepping stone to create huge and long term wealth. If I simplify the definition of wealth than it is, to increase purchasing power of capital/money/asset you possess more than prevailing inflation or returns on other assets.

The first step to build wealth starts at this point in financial markets.

During deflation, prices of all commodities and assets come down. We are passing through a deflationary period. In next 6-8 months, you will see prices of almost everything coming down. How to take benefit of crashing prices? It is simple – Just remain in Cash. Say you had Rs. 30000 few months back, when Gold was trading at Rs. 30000/10gm. You could have bought only 10gm gold. Fast forward now, You have still that Rs. 30000 and Gold is trading at Rs. 26000/10gm. Instead of 10gm Gold, with same Rs. 30000, now you can buy 11.5 gm Gold. Your purchasing power increased by 15%.

This is the year to increase purchasing power of capital remaining in cash or cash equivalents.

But, what if you can increase purchasing power by more than 30%-40% or may be more than that.

This year, overall inflation will come down by 15-20% from high. For Example– Retail petrol price will drop below Rs. 65 and may reach near 62-63. Hence, sitting on just cash will increase your buying power by 15-20%. To increase it further, I have recommended GSEC funds, wherein with every 1% cut in interest rate, it returns 10% on investments. If RBI moves as expected and cut the rate of interest by 1.75% points, it will translate into the returns of roughly 17.5% on investment. Fall in inflation will help increase the purchasing power to the tune of 15-20% and return on other side of 17-20% in GSECs. Combination of duo offer 30-40% increase in buying power of capital.

Prices fall because of fall in demand. And that is the reason, we have observed that when inflation and interest rate come down, stock prices too come down with it. Relation is quite clear. Because of lower consumer demand, industrial production comes down and that reduces demand for all commodities. Interest rates are brought down because of fall in demand or to stimulate it. Hence, by the time interest rates are down, you also have stock market down at bottom, now with 30-40% increased buying power( combination of fall in inflation + GSEC returns ), enter into stock market, which could again easily be down by 15-20%. Cumulatively, you have increased buying power of capital by 50-60%. This is how smart investors create wealth and that is why, I have been suggesting this path to you.

How low Gold will go from here?

I know many investors are eager to buy Gold. Some want to buy it early because they missed earlier phase of rally and some think that it will not remain around these low levels and will soon reach back to Rs. 30000.

Please understand, Gold has remained up for 12 straight years, hence correction, too, will take its own time. DO not buy while it is still falling. Let it stabilise. Gold may stabilise around 25000 or may be around 20000. The most probable range looks 22000-25000. Hence, wait for Gold to fall further and let it stabilise. The kind of sell off seen in Gold is very surprising!! I had expected Gold to come down but fall of 10% in a day, Fall of 200 dollars in 2 days is quite astonishing and suggests that it will take time to stabilise. Do not buy in short rallies. Gold may go up to 26500 or 27000 in next week or so, but only to come down in following days.

Hence, wait for my signal to initiate buying .

I suggest readers to join my Plateau-Mountain-Cliff Wealth Enhancement Services. Where in you will get my recommendations on India Equity, Global Equity, Gold, Silver, Crude Oil, Currency and Debt Market, all in one package. Click to read — https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Apr13

Dhaval Shah — Update: What If Gold crashes to $ 1100!!, Are you prepared?

Posted on April 13, 2013 by investmentacademy

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Dear Investor

I wrote to you on 7th January asking Are you prepared for crash in Gold Price? and to give you an idea, I also mentioned $1100.

https://investmentacademy.wordpress.com/2013/01/07/what-if-gold-crashes-to-1100-are-you-prepared/

In my latest article posted on 5th April, I categorically said that Gold and Oil will continue to correct, easing inflation in India. I also gave specific target of $1400 and very high expectations of Gold dipping below $1300. For Oil, I placed target at $84. During this deflationary wave, we may see Oil correcting further to the lows of $ 76 and very high expectation to settle around $ 69.

https://investmentacademy.wordpress.com/2013/04/05/dhaval-shah-gsec-returns-in-excess-of-20-now/

The question, you may asking to yourself and advisors/experts would be, where to invest in 2013?

I still suggest if you have not invested in Government securities(Bonds), you are missing quite a good opportunity of earning min. 17.5% to max 27.5% returns in next 1-1.5 years with guaranteed capital. Contact me soon to invest.

Gold and Oil price correction is nothing less than blessings of God on India. Much of our domestic problems have roots in this two commodities( except dysfunctional government). Rupee was weak adding further inflationary pressures in last 2-3 years. Rupee was weak because of higher current account deficit and partly due to higher fiscal deficit. Higher fiscal deficit was taken care by Finance Minister in last budget. But, to contain current account deficit was beyond our control. Current account deficit is Export-Import. When we Import more than what we export, we have to sell our currency in world market to buy foreign currency to pay Companies/Firms/Sellers. As we depend heavily on Gulf nations for our Crude Oil needs, the higher the Crude Oil price goes, higher deficit it adds resulting weak currency. The unexpected factor, Gold, worsened the situation further, post 2008. Investor found solace in Gold, hurt by Government policies( bailout/monetary easing/sovereign debt/ cheapening currency). When Europe started bursting, it fuelled Gold buying further. India’s Gold import continued to increase. Gold import had become headache. Rest of the imports add value or are necessity as Crude Oil, Capital goods, food grains. But, Gold does not add value and only adds deficit.

Half of our deficit comes from Crude Oil imports and one third comes from Gold import.

Both commodities are correcting and I expect to correct them further to the target levels mentioned above.

Lower prices of these commodities will ease inflation and inflationary expectations in India. And, there was one reason, RBI was not aggressively slashing rates then that was higher inflation and higher inflationary expectations.

There is already pressure on RBI from industry and Finance ministry quarters to focus policy on Growth instead of Inflation, when GDP has come down to decade low levels, Industrial production is in negative territory, banking credit off take figures are easing and Car sales, too , are hitting lowest growth numbers of decade.

Therefore, I have no doubt and reiterate once again, this is once in a decade opportunity, wherein safely you can earn double digit returns with capital guarantee as you are buying GOI bonds.

I do not see any other opportunity parallel to this one in year 2013.

I suggest readers to join my Plateau-Mountain-Cliff Wealth Enhancement Services. Where in you will get my recommendations on India Equity, Global Equity, Gold, Silver, Crude Oil, Currency and Debt Market, all in one package. Click to read — https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

From: Investment Academy [mailto:academyofinvestment]
Sent: 07 January 2013 14:07
Subject: What If Gold crashes to $ 1100!! Are you prepared??

Dear Investor

Read entire article before arriving on decision. Do not jump off to sell. Read rationales discussed here..

Have you subscribed to my Plateau-Mountain-Cliff Wealth Enhancement Services?

Last 4 days left. Join before 10th Jan, 2013 to avail whopping 50% discount.

Read in Detail: https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

I have tracked Gold very closely since 2007. I recommended Clients to buy Gold, when it was trading at $ 700 giving target of $ 2250. My Clients have earned superlative returns in Gold. I had recommended Gold, because there were rational behind it, certainly not because it has eternal value and to store it in safety vault.

https://investmentacademy.wordpress.com/2008/09/08/lets-learn-from-crude-to-gain-from-gold/

https://investmentacademy.wordpress.com/2008/09/05/over-sixty-economists-agree-gold-headed-above-2200/

I recommended Gold because

I could see that Globally Equity markets are trading at historical high values but far away from reality.

I could see Fundamentals were deteriorating globally notwithstanding markets were scaling newer highs.

World had reached to higher supply built up and demand push should cool down

And when economy crashes and markets tanks

World across Central Banks will pump in trillions of dollars to save the economy

I could see that quantitative easing will not solve problem but will exacerbate it as capital will not flow to intended assets

I could see easy money will drive commodities and metals to the roofs

Biggest of all

I wrote number of times that in time to come, Government will lose trust of the citizens & investors and precious metals will become insurance against Government default

I wrote that excessive printing will lead to higher inflationary environment and higher inflationary expectations and that leads to higher Gold prices ( precious metals)

I wrote that never ever historically, we have seen such a massive printing across the globe.. may it be developed or emerging, east or west, all joined the race of printing to ensure that their economy is least affected in this crisis.

I also presented statistics of money printing vs Gold price.

Every 1 % more currency printing( quantitative easing) in US gives 1 % rise to the Gold’s price

Every 1 % more currency printing( quantitative easing) in Europe gives 0.9 % rise to the Gold’s price

Every 1 % more currency printing( quantitative easing) in India gives 0.7 % rise to the Gold’s price

Gold is still considered as best inflation hedge, insurance against Govt’s default, true money, key currency to hold during war time.

Gold always retains its purchasing power while currency always lose purchasing power

But, nothing goes up forever how true or good it may be….

I believe Gold will hit the wall in 2013.

2012 was the 12th straight up year for Gold. Gold has not seen such a persistent stupendous rise in past century. We have historical evidences which supports rally for straight 10 years or less.

During last rally between 1970-1980, Gold paused after April 1974 to Aug 1976. For more than 2 years and corrected 46 % from $ 189 to $ 104 before final leg up.

Also understand that Gold is trendsetter. We can get the sense of inflation and deflation from Gold’s trend.

Recent development across the world shows restraint in continuing monetary and fiscal easing.

In US, either through higher taxes or through expenditure cuts, Govt will ensure that People are left with less money to spend. US Govt is under tremendous pressure from rating agencies to keep his house in order to retain AAA rating. In short, US will have to ensure that it spends less and save more or/and it spends same but earns more through higher taxes.

Central bank of US released minutes of Dec meeting and many participants argued about the long term effects of continued monetary easing. Somewhere in mindset of policy makers, the fear of long term effects of Quantitative Easing and failure of monetary easing done so far has compelled them to relook at the policy.

Entire Europe is in some or other way exercising austerities. China is trying to cool the growth. Indian Finance Minister also declared to be ready for bitter medicine in 2013. After having expanded balance sheet of Govt and Central bank for last 4 years, time has come to either pause for a while or cut it back to remain healthy and to take care of long term consequences.

As I explained earlier that higher money printing raises Gold prices. Similarly, reduced money printing will reduce Gold prices to similar extend.

Hence, I advise to remain on sidelines until we are clear of policy mess.

Last 3 weeks of closings of Gold has come near $ 1655. Gold’s direction further from this level will be decisive trend setter for Gold and rest of the markets.

As you can observe in attached chart. Gold is forming rectangle along with declining triangle.

I advise to remain sideways until Gold breaks out on either side.

I advise you to Join Plateau-Mountain-Cliff Wealth Enhancement Services to get precise moves of Gold, Indian Equity market, Foreign Equity markets, Currencies, debts and broad economic trends of the world.

Read in Detail: https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Apr8

Dhaval Shah– CRISIL confirms Rs. 25000 crore inflow in Long Term Debt & Gilt funds.

Posted on April 8, 2013 by investmentacademy

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Dear Investor

Recent report of CRISIL confirms that I have been guiding you in right direction. Smart money and HNI money have been flowing in long term debt and Gilt funds, anticipating further rate cuts by RBI. Rs. 25000 crore have been invested into Long Term Debt and Gilt funds in last quarter(Jan-March, 2013). Average debt assets rose by 35 % in Jan-March, 2013 quarter. Gilt funds assets rose by 63%.

1% cut in interest rate gives 10% returns on long term Government securities(Bond). I expect rate cut of min. 1.75% to max 2.75% in next 1-1.5 years. RBI’s such move offer returns on investment from 17.5% to 27.5% in next 1-1.5 years with absolute safety of capital.

My clients have earned absolute 30% returns on investment in 2008, when RBI slashed interest rates 2.75% in short span of 6 months.

Crisil Report – Economic Times

The Mutual Fund AUM (average assets under management) rose to 8.16 lakh crore as the end of Mar ’13 following huge inflows into the long-term debt and gilt funds. According to a report by Crisil, Long-term debt and gilt funds posted a sharp rise in their assets in Mar ’13 quarter due to inflows led by expectations that RBI would initiate monetary easing.

However, equity mutual funds average AUM fell by about 1 per cent to Rs 2.09 trillion led by outflows and mark to market losses, says the Crisil Report

http://articles.economictimes.indiatimes.com/2013-04-05/news/38306997_1_gold-etfs-inflows-average-aum

HNIs pump Rs 25k cr in debt in Q4; investors bet big on further rate cut – Economic Times

Corporates and high net worth investors have raised bullish bets on debt market securities anticipating further interest rate cuts by Reserve Bank of India or RBI. These investors have pumped Rs25,000 crore into long-term debt and gilt funds, primarily government bonds, during the March quarter, taking their outstanding investment tally to Rs93,300 crore.

"Assets of long-term debt funds rose by 35% to Rs85,500 crore, while those of gilt funds gained by 63% to Rs 7,800 crore, during the quarter ended March 2013, compare sequential December quarter. On a year-on-year basis, the assets of these categories have risen by 345% and 119%, respectively" said Jiju Vidyadharan, director, funds and fixed income research, Crisil Research. "Investor interest in the longterm debt category has risen lately, as debt market rallies when the RBI cuts key interest rates" Vidyadharan added. Bond prices and yields move in opposite directions. "There is lot of investor interest in debt funds among investors," said Dhruva Chatterji, senior research analyst, global funds tracker Morningstar.

http://articles.economictimes.indiatimes.com/2013-04-06/news/38327373_1_debt-market-long-term-debt-funds-lakh-crore

If you have not read my earlier articles on this topic, click on link.

https://investmentacademy.wordpress.com/2013/04/05/dhaval-shah-gsec-returns-in-excess-of-20-now/

https://investmentacademy.wordpress.com/2013/03/14/dhaval-shah-smart-money-has-moved-in-when-will-you/

https://investmentacademy.wordpress.com/2013/03/12/dhaval-shah-min-17-5-with-guaranteed-safety/

https://investmentacademy.wordpress.com/2013/02/09/2013-storm-all-around/

Invest under guidance of expert, because in any investment entry and exit are of vital importance.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Apr5

Dhaval Shah- GSEC : Returns in excess of 20 % now !!!??

Posted on April 5, 2013 by investmentacademy

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Dear Investor

If you have not invested in Government Securities funds, yet. Fortunately, you have not lost an opportunity because though RBI cut the repo rate by 0.25%, due to March ending liquidity situation, which usually remains quite strained in debt market and due to that intended gain was not realised.

But, do not delay now. 10 yr bond yield had hardened to 8 % from 7.85 % from middle of march. It has started softening from 1st April and now quoting at 7.95 %.

With more weak data pouring in from domestic and international markets, expectation of returns are climbing high. I am tempted to say, we can safely target 20 % returns( mostly guaranteed ) in Government securities fund in next 1-1.5 years.

One percent cut in interest rate translates into 10% returns in Government Securities(Bonds).

I hope, you heeded my advice to reduce equity exposure of your portfolio. That should have saved you, 15-50% loss on your investments.

In Detail

RBI reduced Repo rate by 25 basis points. There was an expectation of 50 basis points cut. I said to clients, if RBI reduces 25 basis points that indicates RBI will cut rates moderately and if reduces by 50 basis points that will indicate aggressive stand of RBI. But, I am very sure of RBI favouring rate cuts against inflation concerns in time to come. I will explain in detail, later.

But, RBI not only reduced just 25 basis points but also asserted that there is limited room for further rate cut, if inflation persists at present level.

Important question is , would RBI continue to concentrate on inflation at the cost of growth? And if yes, when stance will change? At 4% GDP? At 2% GDP?

I have lauded RBI’s performance and decisions because in last 15 years, RBI has taken decisions independently, not getting influenced by Government and politicians.

But, few times, RBI has delayed key – turning decisions and thus has fallen behind the curve. I argued same, when RBI delayed rate hikes in 2010.

I wrote on 17th May, 2010, that RBI is behind the curve. By the time, RBI started to raise rates aggressively, inflation had reached to 10% from negative territory. The price we paid for delayed decision is, RBI had to raise rates to 8.50 % to contain inflation , wherein RBI could contain inflation with 7% repo rate during true bull run of 2007.

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: image004

I strongly believe that RBI is falling behind the curve in reducing rates. Is to contain inflation alone,, the responsibility of RBI? To contain inflation, which was propelled by high food, energy and real estate prices, RBI killed rest of the economy. Interest rates remained above 7% for more than 2.5 years.

Industrial production got hit hard by RBI policy. Yes, Government policies and governance deficit are equally responsible factors for the same. But, cost of money decides everything. Industrial Production Index hit the -5 towards end of 2011 and since then has fluctuated between -4 to +5. In pre crisis period, it remained above +5 and mostly near 10 and mostly above 10 in 2007.

If for any reason, Oil prices, food prices and Real Estate prices remain at the present level, Will RBI prefer to kill the rest of the economy, to cure 2-3 sectors of the economy? Oil prices are beyond our control(decided by OPEC and market forces), if Coal India does not mine enough and power sector imports coal at double the price and pass it on to consumer, it is beyond RBI’s control, Food price inflation has structural issues( cold storage, transportation, access to market) and for Real Estate, I do not know whom to blame Black money, Politicians, Land mafias, lack of transparency, archaic laws, absence of regulator?

Can these problems be solved by Keeping interest rates elevated? Who does not know in India that we have parallel Black Economy. Food prices are high because FCI and Agriculture minister want to control the market, FCI does not have proper storage facilities, tens of thousands of tonnes of food grains get rotten in godowns of FCI, food subsidy is the best way for politicians to steal huge amount of government money( Only Uttar Pradesh has scandal of 2 lac crore, yes you read it write, food subsidy, Read: http://hungryindia.hpage.co.in/up_food_scam_14876315.html , figure of 2 lakh crore was reported by CBI).

Does RBI has capacity or has it been empowered to contain such things? I think, then it is just illusion of RBI that its interest rates control the food and energy prices. As it got proved, food prices remain elevated during last 2-3 years in spite of RBI keeping interest rate above 7 %.

Good news is – when RBI delayed rate hike in 2010, RBI had to hike full 150 basis points(1.5 %) more to contain inflation. Now, RBI is delaying cut in interest rates, in result RBI will have to slash it more than expected earlier, giving birth to new bubble.

Let me also say that if RBI would have managed rupee well, we would have not landed in economic uncertainty, we are passing through now. RBI explicitly said time and again that RBI will not intervene and will let market forces decide the price of rupee. Managing rupee around 50, RBI would have ensured 10-12 % cut in inflation, as we depend heavily on Oil imports. I have observed many Central Banks of the world, just talk down or talk up the market sentiment in their favour and thus buy the time for the action or correction.

Let us look at present situation of our economy

Source: Economic Times

Car sales fall 20% in March despite record discounts

After a free fall in February, car sales in India for the month of March hit another record low, leading to the overall car sales moving into a negative territory for the entire fiscal, the first in a decade.

Top 50 large-cap companies may report worst aggregate top line growth in two years

Source: Economic Times

India’s 50 most frequently traded large-cap companies are likely to report the worst aggregate top line growth in two years in the quarter to March on lower spending by consumers, although operating margins have improved.
According to the ET Intelligence Group’s forecast of these companies, which constitute the popular Nifty 50 Index, aggregate sales are expected to grow by 4% from a year ago while net profit will rise by 5%. Sales are likely to grow at the slowest pace in nine quarters. In the previous quarter, at 9.4%, revenue growth fell below 10% for the first time in two years.

Finance Minister said Government to press for lower RBI rates

Finance Minister P Chidambaram expressed that the government will continue to argue for lowering the interest rates of Reserve Bank in the backdrop of softening headline inflation and the need to promote economic growth.

“The RBI has to weigh the fact that headline inflation has come down even though consumer price inflation is sticky…It has to keep current account deficit in mind before it lowers interest rate, he said.

He further added that government is always pro-growth and the government will always argue for lower interest rates.

RBI is scheduled to announce the monetary policy for the current financial year on May 3 during which it will take a call on interest rates keeping in view the inflation and other macro-economic parameters like growth rate, industrial production etc.

Some Good news

All factors mentioned above will weigh heavily on RBI’s policy next week. Yesterday, heads of Banks met with RBI governor and proposed to reduce CRR along with Repo rate in next policy meet on 3rd May.

Inflation will continue to ease further

Dollar has continued to appreciate putting additional pressure on Gold and Oil correction. As I have already written that Gold will continue to correct to below $ 1400 level and possibly to $ 1300 level, this correction will help to ease Gold import demand and in turn current account deficit and rupee. Gold import has 1/3 share of total imports.

Oil is also showing signs of not sustaining at present above $ 98 level(Light Sweet Crude Oil). With continued rise in Dollar Index, Oil is well prepared to fall to $ 84 level. Oil is half of our total imports.

Correction in these two commodities will ease pressure on current account and rupee, resulting in lower inflation. This will pave way for RBI to reduce rates.

In my article dated 9th Feb, 2013, I had depicted GDP picture of major economies of the world. Click to read – https://investmentacademy.wordpress.com/2013/02/09/2013-storm-all-around/

I am reproducing GDP contents from that article

World Economies Experiencing Mild Recovery

From the trough of 2008-09, major world economies recovered till middle of 2012. US GDP growth rate declined from peak of 2.5% to -4.6% towards middle of 2009 and got back to 2.6% in 3rd quarter of 2012. But, last quarter GDP has slipped to 1.5% raising fresh concerns. IF it falls in 1st quarter of 2013 below 1.5%, it can slip well below X-axis to negative zone.

Germany grew at above 3.5% in 2007, declined to -6.8% during crisis period and bounced back to 4.7% in 2011. But, from there it has continued to slip and last quarter GDP growth came at just 0.4% lowest since 2007. It, too, can slip below X-axis. Growth rate for France came at 0.15% and -0.5% for United Kingdom. In nut shell, Europe has started degrowing and hence the much hyped economic recovery stories are befooling investors.

Emerging nations economies did recover well in 2011-12 but are facing strong headwinds from lower demand from west, higher inflation at home and very high currency volatility.

China’s double digit GDP growth rate in 2007-08 had slipped then in single digit and except 3 quarters in 2010, it has remained in single digit. Recent data showed a mild uptick. China’s GDP grew at 7.9% vs 7.4% of previous quarter. Yes, silver lining… India has slipped to 5.3% from high of 9.4%.

Indonesia and Philippines are true exception, their growth rates scaled up to pre crisis levels in 2010 and since then remained there.

It should be noted that among major Asian emerging nation, INDIA has fallen quite more compared to peers. It glorifies the Governance deficit of last 5 years.

A day before, IMF said that India’s de growth is attributed to domestic factors. Foreign factors has less to affect growth to the extent it got reflected in recent statements by Govt.

Japan slipped to 0.5% from 3.9% growth rate in 2012. South Korea fell from as high as 8.7% registered in 2010 to just 1.5% in last quarter.

I believe, you have understood the broad picture. The main stream media is not highlighting that except some Asian nations, whole world is slipping into red again as they did collectively in 2008. If you put together Europe, UK, US, Japan, South Korea and India, they will account for atleast more than 60-70% of world GDP and these nations GDP growth is on continuous decline.

It poses a grave picture for 2013. I again reiterate do not remain heavily invested in stocks.

Equity Market:

Equity market continue to trade sideways to negative factoring in uncertainty and lower growth for next few quarters.

I strongly suggest not to miss the opportunity of investing in secured, once a decade opportunity of earning 17.5 % to in excess of 20 % returns in next 1-1.5 years from Government Bonds.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Disclaimer: This is a free investment newsletter published by Investment Academy. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. Author might have open positions in the stocks and Indices recommended above.

Mar14

Dhaval Shah- Smart money has moved in… when will you?

Posted on March 14, 2013 by investmentacademy

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Dear Investor

Do you want to join the smart investors’ early move?

In any investment opportunity, Smart Investor analyzes opportunity before broad market starts thinking about it. Having sensed an opportunity, smart money moves in first then institutions and HNIs move and last street money moves in. Smart money exits when street moves in.

I had written to my clients in Sep, 2008, when Gold was trading below $800 that “Learn from Crude to gain from Gold”, explaining how trend starts in asset class, moves on and how it ends?

I suggest readers to read it. You know, How much Gold went up thereafter.

https://investmentacademy.wordpress.com/2008/09/08/lets-learn-from-crude-to-gain-from-gold/

Problem was same that time as it is today. Client just behave on their own perception and do not bother even to study an opportunity.

I still suggest to those, who have not invested in G-sec funds, to consider investing in it. For details, read my recent two articles on it…

https://investmentacademy.wordpress.com/2013/03/12/dhaval-shah-min-17-5-with-guaranteed-safety/

https://investmentacademy.wordpress.com/2013/02/09/2013-storm-all-around/

I have explained in detail, why to invest in G-secs now? and what returns are expected over a period of 1-1.5 years?

And, Smart money has already moved in… read recent news on G-sec investments…

Mutual funds’ holding of government securities nearly trebled in 2012: RBI

Gayatri Nayak, ET Bureau Mar 13, 2013, 07.03AM IST

MUMBAI: Mutual funds’ holding of government bonds nearly trebled last year as investors shifted attention to long-term fixed income schemes from short-term liquid funds to profit from falling interest rates. Assets under management of long-term bond funds have swelled, resulting in a rise in mutual funds’ ownership of G-secs to 1.20% of the total government bonds in float in December 2012 from 0.27% a year earlier, data from the Reserve Bank of India shows.

Pasted from <http://articles.economictimes.indiatimes.com/2013-03-13/news/37683592_1_bond-funds-gilt-funds-bond-prices-move>

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Mar12

Dhaval Shah-Min. 17.5% with Guaranteed safety

Posted on March 12, 2013 by investmentacademy

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Dear Investor

I wrote in detail in newsletter dated 9th Feb, 2013 that this is the time to invest in Government Securities. This opportunity broadly comes once in decade wherein safely investor can earn double digit return from Government of India Securities without any kind of direct or indirect risk of loosing capital. At worst, if expected rate cut does not go through, Investor will earn anywhere between 6-8% return in a year.

As I have explained earlier, when RBI cuts 1% interest rate, it translates into 10% returns in long term Government Securities ( Government Securities are bonds or say Debt Obligations issued by Govt of India with a promise to bay back capital and attached interest on it upon maturity). Since, this is issued & promised by directly by Government( and or RBI), it is even more secure than Bank FDs.

In next one year, I expect RBI to cut rate of interest by minimum 1.75%, that can translate into minimum 17.5% return on investments in a year. It is getting more interesting because after one year it attracts only 10% tax on return. Interest on FDs are taxed at 33% or the tax slab individual or firm falls into.

Why RBI will cut 1.75% interest rate in next 1 year?

There are several reasons for that. Let me list few of them…

1. Q3 (third quarter) GDP data of 2012-13 came at decade low of 4.5%. India’s GDP growth had fallen to below 5% in 2003, never after that. This clearly reflects the slowdown in industrial activity, lower consumption, lack of investment and governance deficit.

2. RBI was emphasising on 3 parameters. Inflation, Fiscal deficit and Current account deficit. RBI was not comfortable to reduce IR(interest rates) unless these 3 factors are contained. Inflation has fallen to 6.6% from above 10% near to RBI’s comfort zone of 5%. Finance Minister contained the fiscal deficit at 5.2% as he promised and said to contain it at 4.8% next fiscal. Finance Minister’s actions and promise has relieved RBI. RBI was of opinion that higher Fiscal deficit is translating into inflation hence it should be within the limit of 5%.CAD ( Current account deficit) is most notorious to contain. Close to 40% of CAD is due to Oil imports and 30% is due to Gold imports. Now, Gold is unproductive item for the economy. It does not add value and at the same time it (implicitly)depreciates currency. FM has imposed import tariff duty on Gold Jewellery imported from Thailand, also imposed CTT on trading of Gold in Commodity exchanges and also made PAN card compulsory on purchase of Gold above the value of Rs. 2 lac or more.

Thus, RBI’s concerns are taken care off by FM and therefore the path of rate cuts has been created.

3 Global GDP growth is on continual decline. US GDP growth came down from 4.5% to 1.5%, Germany at 0.5%, France at 0.15%, UK has been contracting for last 2 quarters, South Korea dropped from as high as

9% to 1.5%, Japan at 0.5%. Among Emerging economies India has fallen from 9% to 4.5%, Brazil has fallen from 9.3% to o.5%(last 2 quarters have seen mild improvement), China slipped from 11.9% to 7.4%( last

quarter has seen small uptick). If you combine above nations, it will account for 60-70% of Global GDP(may be more than that). RBI is aware of Global situation and from that perspective also, it has become

imminent to take pre-emptive action to stop further decline of growth and stimulate the economy.

3. As said earlier, Domestic factors are also demanding immediate attention of Mr Banker. Truck sales are down for past 11 months. Tata Motors and Ashok Layland are working only 3 days a week. First time in past 10 years, Maruti stopped Gurgaon plant production because dealers have inventory build up of 1.5 months. First time in last 10 years Car sales growth dipped negative 4.5% and two wheelers dipped to 4.2%. FM expressed concerns of Small and Medium enterprise sector. Capital Goods industry is down for last 3-4 years. Companies sitting on huge cash piles are not investing in new projects.

4. Jog generation plummeted 21% between January to December 2012.

5. Investment banks downsize staff, plan to shift work to Singapore or Hong Kong as deal-making slows.

This is just sneak preview of factors weighing RBI’s next policy moves.

Therefore, I firmly believe RBI’s stance will change from inflation concern to Growth concern and will start monetary easing. It may take 1 to 1.5 year for RBI to fully dispose off the intended rate cuts coupled with other monetary measures to form growth conducive atmosphere.

Historically, India’s growth has bottomed out and started a secular bull run once Repo rate drops to 5% and inflation drops to 5%. Currently, Repo stands at 7.75%.

Hence, it represents an opportunity to capitalize min 17.5% to max 27.% return in next 1-1.5 years.

RBI is meeting on 19th march, 2013.

If you are not invested yet in once a decade, safest of safe opportunity, contact me now.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Feb9

2013-Storm all around.

Posted on February 9, 2013 by investmentacademy

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Dear Investor

गम हो के ख़ुशी दोनों, कुछ देर के साथी है |

फिर रस्ता ही रस्ता है, हसना है न रोना है ||

दुनिया जिसे कहते है, जादू का खिलौना है |

मील जाये तो मिटटी है, खो जाये तो सोना है ||

Nida Fazli

Summary :

As deep and deeper, I think about 2013, I firmly believe that it is going to be a stormy year for market. Broadly, 2013 will have forces working on both the sides. Some sectors after 3-4 years downturn and adjustments will make the bottom and start rising. While some sectors having scaled newer highs in 2012-13, will start adjusting with rising living cost, fuel cost, lower profit margins and most important of it slowing consumption demand.

I advise to reduce equity exposures to 50% or may be less than to that, may be 25%. Investor can choose to invest in Long term G-sec funds. I expect RBI to reduce interest rate further from current 7.75% to 6%. That can roughly translate in 15-17.5% returns in next 1-1.5 years.

I also advise not to buy Fresh Gold here. Gold’s recent movement indicates that Deflation is on the horizon not inflation for some time. You will also read in detail that World is sinking back into recession with GDP’s dropping drastically in last few quarters and gargantuan money printed so far are still lying on bank’s balance sheet, has not made a way to consumer which would have otherwise created inflation in system. With continued deleveraging, Gold can correct further down below $1550 to $ 1400 and may be lower. Support of $1550 is crucial to watch.

Let us check in details,

Whether current fundamentals of India and World can sustain the recovery?

Is world really growing out of problems or sinking deep again?

What justifies the current valuation of world indices?

What to expect from 2013?

Let us start with recent policy reforms declared by Finance Minister P. Chidambaram

Pro reform policies

has been factored in market, returning in excess of 20%, since P. Chidambaram took charge of Finance Ministry. So, what matters now is, Can FM implement what he promised? Can he present credible budget, which addresses growth concerns but keeps deficits in check? Can he expedite decision making and policy execution in bureaucracy? Market will now wait to see FM executing framed policies.

Indeed, steps taken by FM are very courageous and has capabilities to stimulate growth, but in long term. Govt has not received single proposal after much hyped FDI in retail bill passed in lower house. What is very important and unanimously industrialists demanding is not big bang reforms. They demand that Govt just functions. Govt keeps bureaucracy in check and get work done from them.

Some time ago, Ratan Tata publicly said that Govt could not clear his power project file for 3 years. Before retiring Mr. Tata said about present Govt policies and working styles in interview with Financial Times, which I do not hope will change in short time as Govt is not sincere about it

“You may have the prime minister’s office saying one thing and maybe one of the ministers having a different view. That doesn’t happen in most countries,”

Tata said different agencies in the government had almost contradictory interpretations of the law or interpretations of what should be done. “These are things which, by and large, would drive investors away in most countries,”

In such a context, Tata said, companies and groups like his own were tempted to look away from home and around the world for growth opportunities. “You start looking for geographies where you can make a difference,” he noted.

Tata said the government’s inability to make decisions made it difficult to grow some of the group’s largest domestic businesses, which include Tata Steel and Tata Power.

In above statements, Honourable Ratan Tata is not complaining about Pro Reform policies not in place or Govt did not subsidize some raw materials or Govt not imposed import tariff to protect domestic businesses.

He is just pointing at Governance Deficit.

Yes, I acknowledge Mr. Chidambaram’s efforts, he was appraised for his work in past and also about his work in Home Ministry before joining FM back. Mr. FM will put hard efforts to frame pro growth and pro reform policies but it will take time to percolate in real economy, may be 6 more months or 1 year.

Bottomed out GDP

Post 1992, it seems our GDP Growth rate has broadly remained above 5% or has not dipped much below 5%. Recent GDP data out for the quarter of July-Sep come at 5.3%. Pre crisis, GDP rate had reached to >9% and remained there for few quarters then dipped to 5.8% towards 1st – 2nd quarters of 2009. It again went back to 9% in 2nd to 4th quarters of 2010 but then it has continued to fall incessantly.

On one side, it looks like that it can bottom out but if Housing prices correct from record highs, if higher diesel prices induce inflation yet again, chances of dip below 5% cannot be denied. That will definitely punish stock market hard.

RBI Reducing Rates

RBI was under severe pressure to reduce rates. But, RBI has gained appreciation from all quarters of academics and industries to prioritize inflation containment over promoting growth for good long term health of Indian Economy. Recently, RBI reduced rate further from 8% to 7.75% and I expect it to continue to reduce to 6%. But, inflation still remains a concern for RBI’s policy, further. Even after slowdown, even after 2 negative quarters of GDP growth in UK, severe slow down and high unemployment rate in Europe and slowed US economy commodity prices and specially Crude Oil has not softened to the comfort level of RBI.

Govt has already declared to decontrol the diesel prices and OMCs will increase half a rupee every month that can provoke inflation again. And, if we see recovery in Europe and US gaining momentum, it poses a threat to our trade deficit and in turn inflationary scenario resulting RBI’s pause to rate reduction.

Therefore, though RBI has declared its intention to prioritize growth in coming policy meetings but conditioned to inflation stays contained.

World Economies Experiencing Mild Recovery

Emerging nations economies did recover well in 2011-12 but are facing strong headwinds from lower demand from west, higher inflation at home and very high currency volatility.

Indonesia and Philippines are true exception, their growth rates scaled up to pre crisis levels in 2010 and since then remained there.

It should be noted that among major Asian emerging nation, INDIA has fallen quite more compared to peers. It glorifies the Governance deficit of last 5 years.

A day before, IMF said that India’s de growth is attributed to domestic factors. Foreign factors has less to affect growth to the extent it got reflected in recent statements by Govt.

Japan slipped to 0.5% from 3.9% growth rate in 2012. South Korea fell from as high as 8.7% registered in 2010 to just 1.5% in last quarter.

It poses a grave picture for 2013. I again reiterate do not remain heavily invested in stocks.

World Markets Scaling Newer Highs

Dow Jones reached back to the level of 2007 high, DAX was only few points away few days back from 2007 pinnacle, FTSE is just 5% away from peak seen in 2007, India, too, crossed many important resistance and Nifty was just 4% away to reach to 2007-08 high.

It certainly presents a question – will this rally survive? Why this rally survived in spite of fall in GDP?

Comparing present scenario with 2007 looks quite similar. I observe a decline in GDP growth rate before markets dropped. But, markets behave differently. Markets continued to go up though GDP was falling in the expectation that with intervention of Central Banks and Governments, GDP will improve. Not only that, there were many embedded and collected problems. Since, dot com bubble, world Govts have not tried to solve the basic problems. They always chose to opt for temporary solutions by cranking money printing presses to kick the can down further. But, accumulated problems of last 13 years will get heavier on temporary solutions. And, it is apparently clear from statistics presented by different experts that it take now $7 to produce $1 GDP for US. How long economies could be run on debts? A day is very near, when choice would be none, but to bite the bullet. In spite of all sorts of efforts by Central Banks and Govts, crashing GDP rates states that consumer and corporations are deleveraging. Neither they are ready to consume at the level of pre crisis nor they are ready to bet on risky assets in the pursuit of speculative profits. They just want to save more for rainy days. 2008 has taught hard lesson to them. Now, is the turn of Govt!!

Falling GDP, gargantuan debts, low consumption, very high budget deficits, high unemployment rates – all combined depicts dreary picture for US economy.

European problems have not been solved. They have just bought time by agreeing Germany to keep bank account open to bail out bankrupt nations. But, now Germany’s debts are also widening. Germany’s debt to GDP ratio reached to 82% from 64% in 2008, more widening will definitely create problems combined with plunging GDP growth rate at home.

Therefore, I believe fundamentals are not matching with the valuations, markets are quoting. I advise to reduce equity exposure.

What holds 2013?

Across the world, growth rates are plunging. Governments are facing steep resistances to enhance debt limits further. Plunging growth rate will reduce Govt’s revenue drastically and that will reduce Govt’s debt paying ability. It will also increase debt to GDP ratios of many nations as in the case of Germany, we saw it exploding to 82% now, from 64% in 2008. Higher ratio will increase borrowing cost for nations and eventually defaulting either explicitly by declaring a nation bankrupt like Greece did or implicitly by devaluing currency.

Severe downfall in the growth rate of China, Japan, Germany and South Korea very explicitly says that world is slowing down. These are 4 major exporters to the world. It will result in reduced growth rates, exploding debts, currency war to cheapen the currency to increase exports again, currency volatility will hurt profitability of firms and that can crash the markets. Japan has already started currency war. Japan cheapened its currency 20% in last 4 months against US. I do not think other exporters will just keep watching Japan’s stimulating efforts. Currency war will worsen the crisis. What is worse this time is,

DO NOT EXPECT GOVERNMENT BAILOUT. GOVERNMENTS ARE ALREADY BANKRUPT. EXPECT GOVT TO INCREASE TAXES AND REDUCE BENEFITS AS GREECE DID AMID CRISIS.

YES, IT CAN BE SIMILAR OR WORSE SITUATION, ONE WE FACED IN 2008.

This is time to reduce exposures from risky assets and to remain on cash.

India, too, facing multiple challenges, too difficult to resolve without destruction.

Current account deficit, budget deficit, high inflation, higher restructured loans, currency volatility, lower IIP, lower manufacturing , topped out global markets, low velocity of money, Japan started cheapening money, escalating geo political tension, higher energy prices, IT companies layoffs, real estate moderating –this is the sneak preview.

I request readers to join my Plateau-Mountain-Cliff Wealth Enhancement Services. Where in you will get my recommendations on India Equity, Global Equity, Gold, Silver, Crude Oil, Currency and Debt Market, all in one package. Click to read — https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Jan22

China – An Investment Opportunity

Posted on January 22, 2013 by investmentacademy

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Dear Investor

I have been proponent of Chinese investments since China market has corrected 66% and more. I have been negating arguments declared by many famous Chinese Investment opponents.

All most all, economists and famous investors had agreed and prepared for hard landing of Chinese economy. My arguments were, if any one nation on planet, which has learned from 2008 global fall out and has corrected policies – that is china.

· If any market that is becoming wealthy( by reserve assets and size of economy)but still underpenetrated on scale of developed world, that is China. China is now 2nd largest economy after US, pushing Japan on 3rd rank.

· China is now world’s largest manufacturer.

· China is showcasing all round development. China built world’s fastest bullet train in record low time. China has achieved sending astronauts in space and building space station.

· China has achieved deep sea exploration capabilities.

· China occupies two fifth of world natural resources.

· China produces 97% of world output of rare earth metals, without which cell phones, TVs, Oil refining, electric vehicles and even guided missiles of US will not work.

· China is world’s largest CREDITOR nation. China has $ 3.2 trillion(10 times more than India) reserves.

· China has largest standing military on earth, more than 1.2 mn soldiers.

· China is 3rd nation after Russia and US having capability to destroy any object in space. China successfully destroyed its redundant weather satellite in 2007.

· US military experts have said that China is developing a new missile, code named the DN-2 or KT-2. If successful, it will make China the only country in the world capable of crippling the US global positioning system, which uses 30 satellites.

· China has secretly fired powerful laser weapons designed to disable American spy satellites by "blinding" their sensitive surveillance devices, According to senior American officials: "China not only has the capability, but has exercised it." American satellites like the giant Keyhole craft have come under attack "several times" in recent years.

· China produces 50% of Global steel production.

· China consumes more than 50% of Global Coal, Cotton output and more than 40% of Global Aluminium and Copper

I can keep writing such thing because so much China has achieved in short span of time. But, What I want to communicate is, if your understanding about China is just as neighbour of India, Pakistan and Russia and other nations, as economically emerged nation and as cunning communist nation. Then, you are only partially right.

Whole truth is China is a developed nation. China is economic superpower. China is military superpower, if not superior than US then at least equal to US. China is largest creditor nation. China is standing where US was 100 years before, when UK’s fall was imminent and US was largest creditor on the earth. Then, US was becoming largest manufacturer of the world and from that emerged superpower US. US was largest creditor to UK and used its financial muscle to overtake UK.

Understand one thing, “Power rests with creditors”. And,” to debtors, creditors are dictators”. We have seen this occurring repeatedly in history. And, “China is simply the world’s biggest financial dictator of all”. Only US owes $ 2 tn to China.

Let us check brief history to understand, why China will succeed to become superpower and rest of the world has no option but to allow ….

Between 1760 and 1830, the UK was responsible for around two thirds of Europe’s industrial growth of output. Its share of world manufacturing production leaped from 1.9 to 9.5% in the next 300 years and in the next 30 years to 19.9%. Around 1860, when British might was at its peak, the UK produced 53% of the world’s iron, 50% of its coal and lignite and consumed about half the world’s raw cotton output. British shipping also dominated the world.

By 1945, US was a mighty power accounting for two thirds of the world’s gold reserves, half of the global manufacturing output and a third of the world’s exports. Economic strength rapidly translated into military power. The US soon found itself playing a more active role in international affairs.

Compare the ratios with above mentioned facts, picture will become clearer..

History demonstrates that economic and geopolitical power has tended to rest with the largest creditor nations. In broad-brush terms, Spain dominated the 1500s thanks to South American gold, Holland gained influence in the 1600s on the back of emergent capitalism and seafaring trade, and France held sway in the 1700s. Great Britain powered its way to economic hegemony in the 1800s on a combination of industrialisation and imperialism, before the US took over in the 1900s. Asia, as a region, and China, in particular, should be the next names on the list.

As recently as the 1980s, the US was the world’s largest creditor nation. Since then a burgeoning trade deficit has been funded by foreign investment in the US. Figures from the US Treasury Department show that China currently holds around $2 trillion in US debt.

Yes, you might be asking question by now that Dhaval , where is the investment opportunity?

As true wealth in US generated after US was producing half of the world output. First America became wealthy and then Americans became wealthy. And, true wealth was generated when that transition started.

China as a nation, has become wealthy and as China has declared in 12th Five year plan, its objective is to double the domestic consumption. A process has started wherein Chinese will become wealthy.

China’s GDP on PPP basis is close to $ 11.50 compared to US $15.50 trillion. Economic growth rate of china is on avg above 7% and that of US on avg below 2% and it is to remain so for foreseeable future as said by leading economists and institutions. Combine this with the cheap production facilities and cheap labour, China can easily turn its economy led by domestic consumption from export led economy.

While some argue that China is export led economy and if Global growth slows, China will suffer huge setback. People at large are under impression that China derives 50% GDP from exports while in Reality it is 30% only. While domestic consumption contributes 40% to GDP. Investments is one area which has keep growing and now reaching to 47% of GDP, mainly due to communist nature of Govt, wherein all major factories and institutions are owned by Govt.

I believe, China is ready for next leg up. This time investors will have twin benefits. First, from the rise of Chinese market and Second from the currency differential. China has been preparing ground for being reserve currency replacing dollar from its current status. But, China is now becoming ready for final moves. Do not miss to read columns, I will update on it as time come for it.

Therefore, I am ready…and

I am about to recommend to buy Chinese equities.

To get such and other recommendation, join my Plateau-Mountain–Cliff Wealth Enhancement Services, in which you will get my recommendation on all asset classes( Gold, Silver, Indian Equities, USD/INR currency, Oil, Foreign Equity and Debt market) under one roof. Click to read more:- https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/

Another pressing factor to recommend China Equity is, its underperformance for last 4 years. Chinese Stock Index is still down 60% from its peak of 6100 seen in 2007. It is ironic that world’s debtor nations US and Europe are back to their peak levels(just 5-10% away from peak). And creditor nation China and Japan are languishing 60% below the peak.

Anyway, tide is turning now and smart money has started flowing in China. Those who were aggressively talking about hard lending of China are reconsidering their stance.

In attached chart, you will find that China is now ready to breach the upper channel of slant trading range. Shanghai Composite can head up for 3300 level from current 2300 that is more than 60 % upside from current level.

Stay tuned to my columns.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Jan7

What If Gold crashes to $ 1100!! Are you prepared??

Posted on January 7, 2013 by investmentacademy