Category Archives: Archive

Diwali Greetings

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

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Buy Silver

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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.

Where to invest in 2015?

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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.

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.

Update on G-sec

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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.

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.

Update on Equity, G-Secs and Precious Metals

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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.

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.

Dhaval Shah :- Alert: World markets on the brink of fall

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Dear Investor

Equity markets of US and Europe are on the verge of crash. It would not be an utter collapse the one we witnessed in 2008, but a correction of 15-20% looks inevitable.

Dollar looks quite ready to go up absorbing flow that comes out of equities.

Indian equity market has shown some resistance in recent past. Was that strength or trap ? In next few days, we will come to know that.

As such our economic condition is weak, demand is also decelerating, banks are in weak position, manufacturing has been contracting for quite some time, services (the major contributor of India GDP) has been steadily shrinking. Our GDP is at decadal low. In this situation, it is obvious to expect that our market should fall in tandem will global peers. Let us see, how much resistance rupee exhibits this time.

It seems that rupee will fall to 64-66 in next few months before strengthening for long period.

It will be interesting to see where the money flows from developed markets.

Thanks

Regards

Dhaval Shah

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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.