Gold hits $1200!

For those who invested in Gold at the right time are enjoying the current ride. Gold is now trading close to $1200 with Gold touching  18450 today! As you know, I have been bullish on gold for last few months and continue to ride the uptrend in this asset.  I know investors get biased towards equities but one should definitely consider alternative assets like commodities in order to diversify.You might be really surprised on the upside in this asset.Read this.

Bull market in Gold

Is gold the next best investment?

For those who have been reading this blog for sometime now, I have been recommending to buy Gold from a slightly longer term perspective. Finally gold is beginning to move up and is nearing $1000/ounce. This might be just beginning of big bull run in gold. Allocate some part of your portfolio to this precious commodity. One good option is to buy Gold ETF on the stock market.

Cheer up- Global Recession Over

IMF has just announced that global recession is over. At the same time , it has warned that developed world economies might never grow at their old growth rates, also referred to the “new normal” by the PIMCO guys. This has huge implications for the world economies.

US will consume less and export more. As a result, export driven sectors might be affected ( not IT services). Countries like India and China might continue to drive global growth as domestic consumptions in these countries will continue to rise. In fact recenty the economist magazine had the following projections:

This is also good for Indian stocks when it comes to liquidity. The FIIs and global pension funds might pump in more money into countries like India in search of better returns. Which further implies that Indian stocks might again command premium valuations.

Lets wait and watch how the “new world” economy looks like and how our markets behaves in the medium term.

Drought effect on India’s GDP

It is interesting to note that most of the research houses have upped India’s GDP growth target despite a severe drought. Here is a good analysis of the impact of drought on India’s GDP. Here are some key points.

A quick number crunching by Indicus Analytics for ET on the 167-odd drought declared districts spread across seven states reveal that if you add all income from agriculture across these districts, it amounts to less than 3% of the country’s GDP, down from 4% in early 2000s.

Morgan Stanley India & South Asia economist Chetan Ahya recently upped his India GDP outlook to 6.4% from earlier estimate of 6.2% even as he nudged down agriculture growth from 3% to 1.5% for 2009. Ratings agency Standard and Poor’s too revised India growth to 6.3% on Thursday from an earlier forecast of 6%, with a rider that it will revisit the forecast in about three weeks time when the monsoon picture becomes clear.

Investment bank Goldman Sachs analysts Pranjul Bhandari and Tushar Poddar writing in a Wednesday ‘Asia Economic Data Flash’ also concur that the recent upside in industrial activity—India’s industrial production up by a robust 7.8% in June—is likely to provide the economy with the buoy to float high despite poor rains. Goldman has maintained its 5.8% GDP figure for 2009, while it has raised its estimate for FY11 to 7.8%, up 1.2% from its last reading.

Drought effect on India's GDP

It is interesting to note that most of the research houses have upped India’s GDP growth target despite a severe drought. Here is a good analysis of the impact of drought on India’s GDP. Here are some key points.

A quick number crunching by Indicus Analytics for ET on the 167-odd drought declared districts spread across seven states reveal that if you add all income from agriculture across these districts, it amounts to less than 3% of the country’s GDP, down from 4% in early 2000s.

Morgan Stanley India & South Asia economist Chetan Ahya recently upped his India GDP outlook to 6.4% from earlier estimate of 6.2% even as he nudged down agriculture growth from 3% to 1.5% for 2009. Ratings agency Standard and Poor’s too revised India growth to 6.3% on Thursday from an earlier forecast of 6%, with a rider that it will revisit the forecast in about three weeks time when the monsoon picture becomes clear.

Investment bank Goldman Sachs analysts Pranjul Bhandari and Tushar Poddar writing in a Wednesday ‘Asia Economic Data Flash’ also concur that the recent upside in industrial activity—India’s industrial production up by a robust 7.8% in June—is likely to provide the economy with the buoy to float high despite poor rains. Goldman has maintained its 5.8% GDP figure for 2009, while it has raised its estimate for FY11 to 7.8%, up 1.2% from its last reading.

RBI on inflationary vigil

As I had indicated earlier-inflation and fiscal deficit remain the biggest threat to Indian economy in the medium term. RBI Governor Mr. Subba Rao has alluded to the same concerns and says that RBI is planning to rollback the monetary expansion as soon as growth returns. This certainly means that RBI might raise interest rates sooner than you and I expect!

Indian governors have never been Keynesian and going back to monetarist roots is all but natural.

It will be interesting to note what Ben Bernanke does in the US. As posted earlier, the great macro trader Soros thinks that stagflation is imminent in the US.

Projects worth 2 lakh crore to build roads

Kamal Nath means serious business his time. He is out there to change the face of Indian roads. Let’s hope he succeeds.

The only issue might be raising such a big capital.

This might mean a big leg up for infrastructure and construction stocks. Watch out for stocks in that sector- IVRCL and Punj LLoyds of the world might rock again.

Roubini- US recovery to be ugly

Read this to get some sense of  US economic recovery.

Things are uncertain but the price action will guide us to the future.

Is US out of recession?

It looks like the recovery has started in the US. The bigger question is whether this will be “V” shaped recession , a “U” shaped recession or a “W” type.  “W” type seems to be most dangerous of them all as investors might be pulled into a false sense of security.

Noted Harvard economist Feldstein sees the risk of “W” shaped recession.

Have a look at some of  economic activity indicators in the US.

Dollar at fresh lows,crude at new highs and NIFTY at new highs

These days even a non supporter of trends might start believing in them. The same old story is getting repeated.

A few days back we had discussed how a downhill for dollar has begun and it looks like there is no bottom in sight for the greenback. At the same time crude is hitting fresh highs at $96! And with the 25 basis cut by the US Fed yesterday, the emerging equity markets might roar again.

The falling dollar holds much significance as it forces international investors to withdraw their dollar assets and put them into commodities and emerging markets. In September, international investors had sold $70 billion of equities in the US market and most of it flowed into India, China and the commodities. This is a big trend and might continue in the coming times.

The biigest risk to this market remains “capital flow control” by the finance minister. Exporters are being badly hit and there has been a loss of jobs . All one can hope is that these doesn’t snowball into some kind of political issue and forces the government to take harsh steps to stem the flow of dollars into India.

Coming to markets, I had written last week that markets are planning to make a big move towards higher levels. To put a number to this move is not possible. When I tell possible targets, people feel surprised. So let the surprise remain while we ride this uptrend.

So what can one do if one is invested or wants to invest now? My suggestion is simple – This is a good time to churn your portfolio and evaluate it again.This is because this rally might get narrower as we proceed forward. If you are not in the “right” stocks, you might not benefit much form these moves.

If you have cash, then either you can take some medium term momentum bets or if you can’t handle the risk just stay in cash. Let me give you an example -many of my clients were able to pick BHEL at 2000 bucks during the famous “P-Note correction”. So just wait like a chameleon and strike at the right time!

I am also thinking as to what can bring a correction this time? 🙂

What do you guys think?

FIIs continue to pump in money-Rupee hits 39!

Now who told you that rupee is going to weaken as it has already risen too much? Many were talking about a 42 on the rupee to the dollar! Today it hit a new multi year high. Check my take on the rupee dollar equation here.

Dollar is in a deep downtrend against most of the currencies and the trend might accelerate if Fed goes for another rate cut. India might see another flood of liquidity.Already we have seen as FII much money in 10 days as we saw in first six months of 2006!

The logic is simple- India is now an investment grade country(graded by Moody’s and S&P). So why invest in US when the dollar is falling? Let us invest in India to take advantage of stronger currency, stronger economy, stronger stock prices and higher interest rates!

See what had written before the rate cut:

“And mind you, Indian markets markets might benefit from this rate cut as we might see more FII money chasing Indian markets due to interest arbitrage.

Another implication of the rate cut is the “weakening of dollar” . So rupee might continue to strengthen against dollars hitting IT companies. I feel the “devaluation” of dollar has begun and the process might continue.”

It will be interesting to see what RBI does to manage these flows.

Also watch for Fed’s next moves. It might choose to cut rates further to keep the US economy growing at the cost of falling dollar.