Dec 17, 2012

Market Update 17/12/2012

The markets were in consolidation mode over the previous week with the Nifty not able to break out of 5965. The good news is that there seems to be support around 5840. 5800 is an important technical support currently and, if breached, we could see a reversal of the uptrend.

The momentum indicators are in the middle zone implying that the market is undecided on its direction for the short term. The moving averages and other long term indicators suggest a continuation of the uptrend.

Moving on to fundamentals, the Govt's win on FDI in retail is seen as a positive.Bharti Infratel's IPO and NMDC's FPO were moderately successful. There is increased risk appetite in the markets and that augurs well for the near to medium term.  

Globally there still is some concern regarding the US fiscal 'cliff'. This could keep global markets range bound for the near term.

For currencies it will be difficult to predict how the market will react in the near term. The Rupee has found support at 54 to the dollar. But, with the looming 'cliff', we could see the dollar appreciate as investors flee to safer treasury's and bills. However, if FII inflow continues to pour in then the rupee could appreciate. It should play in the 54-55 range. 

Industrial production has inched higher and inflation has moderated leading to speculation that the RBI has room to lower rates. However, debt yields have not moved much in anticipation of the same.

Gold has remained steady. Not much movement on either side. In the international markets it's found support at $ 1700/oz. Should move in local markets in line with the dollar.

Dec 12, 2012

FD's vs Equities- A Rejoinder

Dear Mr. Gomas,

Thank you very much for sharing Mr. ARK’s mail with me. It was a very informative piece and I appreciate Mr. ARK’s efforts.

One is wealthy when one has more than one requires.  If you require Rs 1,00,000 and you have 5,00,000 you are wealthy- plain and simple.  

Mr. ARK has strong and valid points. However, he has ignored something very important which I would like to highlight by means of a story.

Mr. Natwar sold a piece of land and made Rs 1,00,000/- in 1996. I’m sure you will agree that 1,00,000 was quite a sum in those days. He had no requirement for the money immediately. He decided to ‘invest’ the money for his daughter’s higher education in 16 years by investing in a bank FD.  

Fast-forward to 2012 and Mr. Natwar’s corpus is around Rs 3,42,600/- (@8% compounded p.a. and non-inclusive of taxes).  The corpus has more than tripled- smart investment it would seem. So what is the value of this investment in present terms? Mr. Natwar can still afford his daughter’s education but maybe not the best as he would have liked.

In 1996 Mr. Natwar was wealthy- but in 2012 he just about meets his requirements. In other words Mr. Natwar’s wealth has remained the same or decreased. Inflation has eroded the more than three time jump in his corpus.

FD’s are investments that protect your wealth, not grow it. This is fundamental to understand. If you want to remain in the same place then yes- invest in FD’s. Makes sense as there is no risk. But if you want to grow your wealth- then we have to look at other alternatives.

Equity, real-estate and gold are assets where there are no fixed returns. No one can say what the value of these assets will be tomorrow, in 5 years or in 10 years and that is exactly what the risks are with these investments.

I will cite real estate and gold as examples as I go further. You may be more familiar with these assets.  Gold has moved up considerably over the past few years. But, had you bought gold 3 months back @Rs 32,000 per 10 grams (on 14/9/2012) then today(@ Rs 31,455/-) you are sitting on a loss. With real estate too we have a similar story. Prices have remained more or less stagnant for the past 2-3 years. Had you invested 2 years back and were selling today you won’t be making much of a profit if at all. Everyone is buying on the assumptions that these assets will move up. But, when and by how much we cannot say.

This is exactly why we call these ‘long-term’ investments. Had Mr. Natwar invested his Rs 1,00,000 in gold, real estate or even in equity- he would have made much more than what he made through FD’s. But, there is the risk of not knowing what returns he will get and when he can/should sell. It might be that when he has his requirement the asset might not be properly priced. He will have to be smart and sell when he gets a good price. He might need advice for this. And that is what exactly I’m here to provide him.

The rewards for being able to accept risk and plan around it are well worth it. An investor has to understand this fundamental insight without which no investment is possible. If you want to grow your wealth you will have to take some risk. If you are content with your wealth and are comfortable with the knowledge that there is the possibility of it being eroded due to inflation then FD’s are the ideal investment for you.

Mr. ARK has quoted the case of Japan. Along with equities the prices of real estate have also came crashing down.

Gold also was on its way downward in yen terms till about 2000, when globally the prices of gold started to increase.

This is precisely why we had the depression in Japan. The economy shrunk because of the fall in value of assets. A bank FD in Japan currently yields 0% (Please check graph below).

I’m sure you won’t consider that as an investment for wealth creation whatever the circumstances. 
I hope this has cleared your understanding of what an FD is and where it stands in respect to other asset classes. I’ll be happy to clarify your doubts.


Recommended reading for further understanding:

Dec 5, 2012

Fixed Deposits vs Equities

Dear Mr. Gomas,

Thank you for consulting with me on your investments. As we’d discussed last evening I will proceed to explain why investing in Fixed Deposits would be better than investing in Equities. 

The primary purpose of investing is to have money when you need it. These needs may vary from person to person and time to time. But the basic principle as to why we all invest is to have money when you need it.

When we look at important events in our lives- buying a house, children’s education, children’s marriage retirement etc it is important to have the money required at the right time. By investing in a Fixed Deposit you can be sure of the amount you will have, whereas in equity it’s a bit like a lottery.

Say you invested Rs 1,00,000/- in January 2008 in a Fixed Deposit for your daughter’s wedding in 5 years. Assuming 8% per annum as the yield your return today would be- 1,46,933/-. Even with 30% tax the amount you would have in hand would be 1,32,853. 

If you had invested the same Rs 1,00,000/- in the Sensex, in January 2008 the Sensex was around 21,000. Today, nearly 5 years on it is at 19,000! Your 1 lac would have become Rs 90,476/-. In other words you would have suffered a loss.

Most equity advisors say equity is a long-term investment. They never explain what a “long term” is. Is 5 years not enough to plan for an event? Should important events in your life- like a wedding or retirement depend on the vagaries of the market? I wouldn’t depend on these investments for financing my goals. A statistic that is often quoted is that the index was at 100 in 1979 and today it is at 19000. That gives you an annualized return of 17%. And the period is 33 years.

However, if we look at the period from 1992- 2004 of the Sensex, on March 31st 1992 Sensex was valued at- 4253. It took until September 30 2003- Sensex at 4453- for the market to decisively break out from this high. That’s a period of 11 years and 6 months. To me that would be a long term investment. There is an interesting article on the subject here:

Since 2003, the market picked up momentum and made money for everybody, up until 2008. But, there was a long period before that where there were no returns at all. What this tells us is that it is very important to ‘time’ the market. And, even the market ‘experts’ will tell you that it is not possible to ‘time’ the market. 

Even the oft repeated SIP mantra doesn’t apply to all time frames- Take for eg a Rs 1000/- SIP in the index from March 1992 to March 2002- a period of 10 years. The reason why I chose March 1992 is that the market was at its peak (Harshad Mehta’s time). A 1000 Rupee SIP would have returned only a meager 2% p.a. yield- again highlighting the importance of ‘timing’ the market.

Then there is the case of Japan where the markets haven’t recovered for nearly 30 years! If 30 years is not a long term then I’m not sure what is!

Please look at the all-time historical graph above.

To read more on the Japanese market crash.

One can make money on the markets only if one has the skill to time the market. There is no such thing as it’s always a good time to buy the market or an SIP is designed to give you returns in all market conditions. It’s a game best left to those willing to take the risk to play it. 

It is always be better to be safe than to be sorry. I would thus advise you to look to invest in Fixed Deposits over equity.

 I'll be happy to answer any other queries that you may have.


Note: Sensex data from

Nov 10, 2012

Market Update 10/11/2012

The Nifty closed 0.20% down from the previous week. Global markets were also negative for the week as news of Obama's re-election have not been received well by the markets.

5580 is an important support for the Nifty. It is also the 50 DMA. The markets could test this support in the week ahead. Momentum indicators suggest a period of consolidation.

Obama's re-election means the likelihood of QE3 is high. Gold should go up as investors look to hedge inflation. The dollar should weaken and that should reduce the current account deficit. Expect some of the money to find its way in to the Indian market.

The winter session of parliament will test the resolve of the Govt to implement reforms. If reforms are passed through then we could see a small bull rally.

Gold closed the week at 3164 per gram. Prices could go up domestically on account of Diwali.

The dollar continued to gain on the Rupee. It closed the week at 54.64. There is strong resistance at 54.8.

Asset stance:

1. Mutual Fund SIP. Markets are expected to be range bound over the long term and this is a good time to accumulate units through averaging.   
2. Play the range game. Markets seem to have a broad support around 5250, and a resistance at around 5850. Only for pros.
3. Fundamentals to pick value stocks. Only for pros.
4. Go for investments in balanced funds- Auto asset re-allocation will book profits for you and you will also get excellent rates in debt.

1. Short term yield rates are expected to moderate around 8-8.5%.
2. RBI expected to reduce rates in December policy review (market sources). Advice duration play in long term income funds.

1. I'd short the dollar. US economy still recovering and likelihood of QE3. But this is a long play (as in 3-6 months). Reforms will be pushed through in parliament means Rupee will go up.

1. I'd go long on gold. It's not gone anywhere this year. But, it looks like this is a period of consolidation before it takes off again. With QE3 there is more likelihood of gold going up.

Oct 13, 2012

Market Update 13/10/2012

The markets are down 1.20% from the previous week's closing. Technically there has been some consolidation in the markets. 5650 on the Nifty is an important support and should it hold then we could see some up move.

The IIP data for August is seen as positive and should improve investor sentiment. CPI data released yesterday have indicated that inflation is moderating. However, inflation as measured by the WPI, continues to be above the RBI's comfort zone.

US unemployment data has come in at a 4 year low. This could have a positive impact on the markets in the near term. The US elections will be keenly watched and will be one of the key events in the coming weeks.

Going forward, more consolidation is expected in the markets in the near term. Long term technical indicators are still positive and there is also a fundamental case for the markets to move higher in the medium term. The present lull can be viewed as a buying opportunity.

The USD closed the week @52.81 to the INR (close to support of 52.85). The dollar made a strong recovery after the unemployment data was released with investors feeling more confident about the US economy. The dollar is expected to strengthen in the near term. Support of 52.85 could be breached and we could see the INR@53.2.

Gold has seen some weakness in the international markets with investors preferring the dollar and dollar denominated assets. Prices in the local markets have remained steady with gold closing at 3128.2/ gram.

Oct 8, 2012

Market Update 8/10/2012

The markets ended up 1% over the previous week. Some consolidation and profit booking is expected ahead of the results season. Index heavy weights Infosys and HDFC Bank will declare their quarterly results on Friday and that could well set the tone for the remaining season.

The market still looks slightly over bought according to the technical indicators. However the long term trend indicators such as the moving averages suggest that this rally could continue for the near to medium term.

The proposals by the cabinet to allow direct investment by foreign entities in Insurance and Pension Funds has been welcomed by the markets. It shows a commitment by the Govt to stick to reforms and to open up more sectors of the economy. International investors are pumping money in to the markets and that trend is likely to continue.

The Rupee is expected to strengthen further in the days ahead. Currency analysts are expecting the Rupee to find resistance around 50 to the dollar. However for the near term 52.85 looks to be a support and 51.15 a resistance.

Long term bonds continue to rise with the expectation of a rate-cut by the RBI in it's policy review at the end of October. Short-term rates are expected to remain steady and might move lower as the system is flush with funds from abroad.

Gold is expected to stabilize at these levels before moving up again. Gold ended the week at Rs 3118/gram.

Oct 1, 2012

Market Update 1/10/2012

The Nifty ended September with a gain of 6.90% over the month. The important psychological benchmark of 5700 has been breached and the main indices hit their 52 week highs (Nifty 52 Wk H- 5735, Sensex 52 Wk H- 18869) on Friday.

Technically the market continues to look bullish. Some consolidation is expected around these levels in the short term. 5830 is an important long term resistance.

Spain's budget had investors around the world worried with it's burgeoning fiscal deficit problems. However, the Government has gone in for some positive measures that have helped investor confidence worldwide. Campaigning in the US presidential elections go on and the incumbent Obama is expected to win another mandate. This could be seen as a positive for the markets as the Fed will be likely to carry on QE3 with a Democratic White House. A period of consolidation with a slight positive bias is expected in world markets until conformation of the results which can be expected in early November.

The recently launched 'reforms' by the Indian Govt have been welcomed by the domestic markets with both local and foreign investors looking to invest in equities. FII's have been pumping in money in to the markets and as a result the Rupee is appreciating. A stronger Rupee helps to control our current account deficit and is seen as positive for the economy.

The Rupee ended the week at 52.8 to the dollar. Some consolidation is expected at these levels before the Rupee further strengthens.

Most analysts expect a rate cut in the RBI review meet on Oct 30th. Announcements by the RBI top brass have indicated that the central bank is worried about growth and could act to stimulate the same. However, inflationary pressures continue to persist. The Govt has indicated that it will stick to it's borrowing program and not over-shoot. This is seen as giving room for the RBI to maneuver.  The appreciating Rupee also gives the RBI some room to act. The recent revision in diesel prices and the expected surge in global commodity prices due to the surge in global liquidity are expected to keep inflationary pressures high.

Gold continues to remain an attractive asset class and could well be poised for another take-off. Price of gold has fallen from it's most recent highs. But, the factors both domestically (on account of the festival season) and globally (liquidity) suggest that gold could go higher in the near to medium term.

Sep 8, 2012

Market Update 8/9/2012

The markets closed the week 1.6% up from the previous week’s close. Most of the up-move was made on Friday with the market recovering almost 2% on a single day. Technically the market’s moved from a slightly over-sold position to a moderate position. The market is expected to rally in the near term.

The ECB’s plan for unlimited bond purchases has turned investor sentiment positive and global markets are expected to rally. US jobs data also came in low and analysts expect that the Federal Reserve will now have to unroll QE3 in order to revive the economy. The monsoon session of parliament ended this week. Most policy making has remained stalled as the controversy over the coal allocation scam has refused to die down.

The Rupee closed the week at 55.53 to the dollar.  The Rupee is expected to gain strength in the near term.

Gold remains steady and is testing Rs 32,000/ 10 grams in the local market. It is currently seeing some slight resistance at that price. The near to medium term outlook for Gold remains positive.

Sep 3, 2012

Market Update 3/9/2012

The markets closed the week down more than 2% from last week. Technically we've moved from over-bought to stable. However, there is slight weakness with the market price inching near the 30 day moving average and the 50 day moving average.

The logjam in parliament has not helped investor risk appetite. GDP figures have come in at a 10 year low. With the RBI having little room to maneuver as inflation persists, the macro economic scenario looks weak. However, globally there have been talks of QE3. If announced that will turn the outlook positive for the markets.

Gold continued to rise in the domestic markets before some profit taking towards the later part of the week. Globally gold is near a 5 month high as speculators are taking long positions on QE3. It is expected to remain at current levels with a slight positive trend till any formal announcements.

The dollar closed the week at 55.52 to the Rupee. It is expected to be range bound for the near term with a slightly negative trend. 

Aug 25, 2012

Market Update 25/8/2012

The markets ended the week 0.4% above from last week. Technically the market looks like it has built a base so that it can rally. The indicators are all bullish and that should augur well for the markets in the near term. There could be some initial period of consolidation as some indicators are in the over-bought region.

The Dow index rallied more than 100 points last evening on indications that the Federal Reserve could usher in another round of Quantitative Easing in the system to boost growth. If this happens then some of that money should come in to India and should be positive for the markets. The key variables to watch will be Gold rates and the Dollar rates.

The dollar closed the week at 55.50 to the Rupee. It can be expected to weaken a bit in the days ahead but it should still be within the range of 54.8-56.2 in the near term.

Gold has risen to record highs on speculation that there will be high demand domestically for the metal with the upcoming wedding season and festival season. Gold closed the week at Rs 30,810 for 10 gms. We could see the price rise as investors globally will flock to the metal if any easing is announced.

The RBI is not likely to cut rates at its policy meeting on September 17th. Yields on debt instruments are expected to hold steady for the same reason.  

Aug 19, 2012

Your first savings

This article is intended as a guide to anyone and everyone, regardless of age, who has yet to start any savings.

Getting your finances in order is like constructing a building. First and foremost you need to ensure that the foundation on which it is built is strong, and only then do you build on it. Building a strong financial foundation means having enough cash for any and every eventuality. Only after you’ve created this foundation should you look to build any further.

Most people who don’t have any savings are prone to experience a cash crunch at some point of time. Having a strong financial foundation means having enough cash to tide over any cash crunch. We are not talking about those people whose expenses over-shoot their incomes. We are talking about those cash crunches that arise due to unforeseen situations like- a sudden medical expense, loss of employment, or any other sudden and necessary expenditure that needs to be taken care of immediately.

To tide over these exigencies we need to create an- ‘Emergency Fund’ for ourselves. What this fund will do is provide cash when we have an urgent requirement for it. This fund will provide for the smooth functioning of our lives even during times of financial pressure.

How much this fund should constitute is a subjective question, rather than an objective one, and will therefore differ from person to person. In most financial plans we look to build a corpus of around 6 months to one year living expense. That is we take the average monthly expense and build a corpus that is around 6 to 12 times that amount. The reader should be able to ascertain this amount for his/her self. 

Now the next question that comes is where to park this fund. For this fund the primary criteria is liquidity. That is you should be able cash this fund anytime you want to. Don’t look at any financial instruments with a lock-in period. Also don’t look at any instruments that have an exit-load that could affect your capital when you withdraw. Most tax-saving instruments don’t qualify on both those counts.

A bank savings account is one of the best places to park this fund. One could also look at building up this corpus through a recurring deposit in a bank. If the corpus is already created then one could look at parking it in a Fixed Deposit. However, in the case of both Recurring Deposits and Fixed Deposits please ensure that you can liquidate the amount at any time and be sure that you understand the charges for premature closure/ withdrawal. The more sophisticated investor can look to park this corpus in a liquid fund and also avail of tax-benefits. 

Aug 17, 2012

Market Update 17/8/2012

The markets ended the week slightly positive. The technical indicators are in the over-bought region. We could see some profit-taking in the next few sessions. The Nifty is expected to consolidate at these levels in the next few days. There are no significant triggers on the horizon.

The ruling German coalition’s support to the ECB has been a big positive for the Global Economy. Markets worldwide have rallied on the news. Back home the markets are looking to Mr. Chidambaram to deliver on the long promised reforms in the monsoon session of parliament.

In debt, short term funds are expected to do well as most analysts expect a rate cut from the RBI during the later part of this calendar year. However, inflation continues to persist and if the Govt goes on to de-regulate diesel and LPG (to reduce the fiscal deficit) then it will only add to the inflationary pressures.

The rupee tested 56.1 to the dollar before recovering a little towards the end of the week. It is expected to remain in the same range as the market consolidates.

Gold has crossed the important level of 30,000 for 10 gms in the local market. Internationally the metal has been in a range between 1600-1625 $/oz. Global factors will continue to drive the price of gold. For the short term the price is expected to rise marginally.

Aug 11, 2012

Market Update 11/8/2012

The markets made gains early in the week and looked to consolidate towards the end. Technical indicators suggest that there could be a period of consolidation ahead with a slightly positive trend. However, the moving averages are all within a few points of each other and a correction could easily reverse the trend.

The IIP data released this week was negative and that has investors worried. These are confirmations that the economy is slowing down. However, inflation data is also on the higher side and the RBI has little room to bring down rates in the near term. The markets will therefore continue to remain range bound in the short to medium term.

Globally also the markets were in a period of consolidation. Europe still remains the main worry.

The Rupee closed the week at 55.28 to the dollar. It is expected to trade in the 54.8 to 56.3 range for the near term.

Gold also remained range bound as it remains tied to the dollar for the time being. At these levels gold looks a bit expensive to enter in to. Investors already holding gold can continue to hold it.

Mar 17, 2012

Budget Report

The finance minister has opted for a soft approach in his budget speech in parliament on Friday. While the spending on infrastructure and other essentials should be welcomed, the lack of the much needed reforms is worrisome.

The fiscal deficit (the excess amount that the Govt spends over what it generates) is set to touch 5.9% of GDP this year and Mr. Mukherjee’s target for next year is 5.1%. This is the biggest cause for worry in this budget speech. Most economists agree that a fiscal deficit of below 3% is acceptable. That we are over-shooting that level by almost double this year and, slated to do so next year also, does not augur well for the economy. Government borrowing will shoot up (to meet the under recoveries)  and it will add to the inflationary pressures as well as keep the interest rates for the economy  uncomfortably high. I expect debt investments will continue to do well in the coming year. I also expect the high rates on home loans, personal loans and auto loans to continue.

The equity market reacted negatively to the budget. The markets were hoping for some big reforms especially the introduction of the Direct Tax Code (or DTC). The lack of any new policy initiatives and also the raising of the Central Excise Duty by 20% will not be taken happily by the market. The fiscal deficit situation could also weigh in on the market. I expect the market will react negatively in the short term before global factors once again will take over sentiments.

The Rupee continued to hover in the 49-51 range to the dollar. We continue to see Foreign Institutional Investors (FII’s) bring money to the market. However, their reaction to the budget needs to be closely watched. I expect the dollar to trade in the same range with a slightly negative bias.

The increase in the import duty of Gold is a welcome move. Gold is still seen as an investment by most Indians and we’ve been importing record quantities every year. The high price of Gold has begun to affect the current account deficit (balance of imports vs exports) and is adding to the inflation. Gold is a dead asset, as in it does not actually add value in any way to the economy. The move to raise the prices of Gold should be welcomed and investors should look at other more productive avenues for their investments.

The move to increase the income tax slabs is a positive. However, this exercise needs to be inflation linked if it is to have any relevance. There are already moves to link the slabs to the inflation index. The Rajiv Gandhi Equity scheme also seems promising. It is directed at bringing more middle-class participation in the equity markets by offering them more tax incentives.

Over-all I feel that this was a chance missed by Mr. Mukherjee. I understand the political compulsions with the drubbing received in the last elections and Ms Banerjee’s ire over the railway budget. It was the compulsions of coalition politics. But, India needs some big reforms of the type introduced in 1991to take it on the next trajectory of growth. Those kind of reforms and foresight were lacking in this budget speech. The next budget will be the last one delivered by this Govt. We can expect it to be a populist budget which will further strain the Govt’s finances. This was probably the last chance for this Govt to implement the much needed reforms. 

Mar 3, 2012

Market Update 3/3/2012

The markets consolidated this past week in the range of 5320- 5450 on the Nifty. 5320 is an important support for the Nifty. Should the markets break-down below this point then we could see a period of weakness ahead.

The European debt crisis seems to have stabilized for now. The 130 billion euro bail-out package for Greece has been well received by the markets. Also the European Long Term Refinancing Operations (LTRO) has ensured that the European Central Bank (ECB) is flush with funds to over-ride any immediate threats arising from the debt crisis. The euro has risen as a result of increased investor confidence in the currency.

Domestically the stock sale of ONGC nearly flopped and was saved only because of last minute buying by public entities SBI and LIC. This indicates that investors are still wary of investing in the markets. The Government’s disinvestment plans will have to be re-worked and this could have a big impact on the fiscal deficit.

The election results of UP need to be closely watched. A strong showing by the UPA and its allies should augur well for the markets. The results are coming out on the 8th of March.

It is also budget season. The 3rd week of March is action packed. 14 March is the railway budget. We expect that rail fares will increase and that a slew of new rail infra projects will be announced. Companies in that space should do well in the run-up to the rail- budget. Thursday, 15th of March is RBI policy review day. And 16th of March is the union budget.

Inflation seems to have stabilized, though most analysts argue that this is because of the high base effect of last year. GDP data that was announced last week was also weak. The government has asked the RBI to reduce rates. However, the high prices of crude could influence the RBI and it might resist from bringing down rates too quickly. I expect another CRR rate cut and nothing more from the RBI.

The Rupee seems to have stabilized at 49 to the dollar. The dollar has weakened on account of increased investor confidence in the euro. The dollar- rupee rate is expected to remain around these levels.

Gold was very weak last week on account of a stronger euro. We could see further weakness.

I’ll be happy to hear your comments/ suggestions.

Feb 12, 2012

Market Update 12/2/2012

The markets continued to remain strong this week and there are indications of a period of consolidation ahead for us. The market indicators have been in the 'over-bought' region for sometime now and as a natural consequence of that we expect that we could see some kind of profit-booking in the days and weeks ahead.
The Index of Industrial Production (IIP) data numbers that came in on Friday were weak and the markets reacted negatively to the same. However, the positive to take from that is the RBI now has the room to lower rates with falling industrial productivity and falling inflation. We reiterate that the investor looking to park funds in debt for the long/short term should do so now as the rates are not expected to remain this high in the foreseeable future.
The Greece bail-out package for 130 billion euros should pass through in the next week. The Greek parliament has to approve the austerity measures imposed on the nation as part of the deal. While there could be some political wrangling, the deal is largely expected to pass through. 
The Rupee also seems to be in a period of consolidation around 49 to the dollar. While the large appreciation in the Rupee came as a surprise to everyone it is expected to weaken as there is expectation that the RBI will reduce rates. Foreign Institutional Investors (FII's), who have largely been responsible for the rally we are seeing in the markets, have pumped in about $2 billion in to the Indian equity market in this calendar year. If we continue to see such large dollar in-flow in to the market then the Rupee could hold and maybe even strengthen further.
Gold has seen some up-move largely on account of the appreciation in the Rupee. As with the Rupee, we expect to see a period of consolidation in the days and weeks ahead.

Jan 21, 2012

Market Update 21/1/2012

The markets have seen a rally of 9% from the beginning of this calendar year. The Nifty settled the week ending at 5048.6 while the Sensex stood at 16739.01. The markets seem to be carrying positive momentum and we could still see some further up movement.
One of the leading factors for this rally has been FII investment. While I don't have the exact statistics, the sharp rally seen in the Rupee is indicative that FII's are on a buying spree and that augurs well for the markets. Recent decisions by the Union Govt to open up FDI in Aviation have helped create an environment conducive for foreign capital. The Rupee currently stands at around 50.32 to the dollar. It's seen a sharp appreciation from the levels of 53 to the dollar. 53 is a strong support for the Rupee. 
We are also in the midst of the 3rd quarter results and most of the big names have disappointed the street(which was expected with the slowdown in the real economy). RIL's share buyback has helped lift the stock but that doesn't hide the fact that this season's results for the company have been poor. Investors are advised to keep a close watch on the results of the companies that they are monitoring.
The key event in the upcoming week will be the RBI's policy announcement on Tuesday. While I was expecting a rate cut, the news coming from key sources suggests that the RBI is likely to keep all the key rates unchanged.
The markets should continue to do well in the short term. There could be negative days due to profit-booking. RBI's policy will be a key event to look out for but nothing significant is expected. 
Gold remains steady at around Rs 27400 for 10 grams. It is expected to remain at these levels for sometime.

Jan 7, 2012

Market Update 7/1/2012

We had a moderately positive first week of the year. Tuesday's large rally has given the market some momentum and it seems that the markets have taken a near- term support of 4675 on the Nifty. This means that should this support hold for the early part of next week, then we could see 4900 in the near term. However the macro economic factors for India remain weak and the rally is not expected to last. 
Investors would be advised to use the current rally to switch funds(if required). Traders can look at the opportunity to make quick profits. But, the long term investor should still be watchful as the markets are still extremely bearish. The long-term(over 3 years) prospects for the Indian economy are still promising and therefore for the enterprising investor there are opportunities galore. 

The Prime Minister has made clear of his intentions to allow further FDI in Retail. The Government doesn't have much choice with the current a/c deficit balooning. The only available option to the Govt to shore up foreign currency is to open up more sectors of the Indian economy to foreign investment. There is a lot of political opposition to FDI in any sector with politicians revving up emotions over the issue. A good show by the Congress in the UP elections will definitely give confidence to the Govt to go ahead with these policies.
We expect the RBI to reduce it's Repo and Reverse- Repo rates when it meets on Jan 24th. The negative food inflation in the past week gives it the room to do so. This could result in a small rally in banking stocks that could spill over to other sectors. It is expected that the private banks will start the rally. Kotak Bank, Yes Bank, Axis and HDFC bank are expected to lead the rally. The FD rates are expected to correct and investors are advised once again to make maximum of this opportunity to invest in long term debt before the rates begin to fall. 
Gold seems to have found some support at Rs 2750/ gram. However the rise in the dollar index is indicative of further down-side risk to Gold. I would advise investors against putting any lump sum investments in Gold at this point as it is expected to weaken further. 
The Rupee seems to be hovering around it's support of 53 to the Dollar. However the macro situation is still not conducive for India and we expect some further downside to the Rupee. Govt moves to allow foreign individuals to invest in Indian equities and moves to increase the NRE FD rates have strengthened demand for the Rupee but this is not expected to last.