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

Standard

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

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.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s