Tuesday, December 31, 2013

Outlook For January 2014 / Outlook For 2014

Well Nifty has broken the jinx in 2013 by posting a new high [albeit for a few moments] and kept its head well above water. This was certainly not expected and a sharp fall was anticipated in 2013 as long as Nifty stayed below 6338. Global indices were on a roll in 2014 with European and US markets outperforming Asian markets big time. There will be many bears who will still say that these rallies are narrow with only a select stocks taking indices higher etc etc etc. What is important nevertheless is that indices have moved higher on the back of rampant money printing and this is exactly how things will pan out as long as QE continues.

On Nifty, the longer term bull case was 2 consecutive closes above 6280 that was satisfied in December '13. Some correction is likely in the next 3 months to about 5740 levels [5445 also possible] but this is healthy for the market. All such falls are excellent buying opportunities. The FMCG /Pharma / Consumer stocks defensive stories have played out their part. They may also rise further but no where close to the growth rates they had in the last 3 years. Now at best one can assume about 10% growth per annum in most of these stocks for the next 3 years or so. The cyclicals like capital goods, banks etc that will form the next major wave of growth for 2014. Midcaps are yet to perform and in all likelihood they will in 2014. 2014 is the year of elections and as I have been mentioning before, the markets do not care whether it is NDA or UPA at the helm. The latter half of 2013 have suffered from policy paralysis and this would have happened even if the opposition were in power. Post-elections, once there is certainty of a stable government, markets are expected to roar. The only spoke in the wheel is a third front that hot money won't like and that seems very unlikely for 2014. Post elections, the currency space can be expected to appreciate significantly and take Rupee-Dollar back to sub-50 levels by end-2014. DEFTY that has kept FIIs languishing will finally surge up IMHO and things should be on a song. Getting a year-end target is difficult but during the year, 6700-6800 is something that Nifty should be able to achieve in the 2nd half of this year. The next logical target is 7200 but markets don't move in one direction all the time. One must keep expectations normal but 7200 is something that we will see on upside in the next 3 years and 4900 is expected on downside once.

The point to remember is that unless Black Swan events like wars, economic crisis beyond normal limits etc take place, 2014-Oct'16 is a strong bull market for India. Every fall is a buying opportunity on indices like Nifty and BankNifty. The greater the fall, the greater the buying opportunity. So keep that cash ready to beat inflation. Ignore the noise regarding NPAs and Credit Restructuring with banks. It is well known to all market players right now and although fundamentally bad, the government banks will be recapitalized time and again. Stick to large-cap banks like Axis, SBI and ICICI and ideally go for SIPs in these scrips. The SIP mode will ensure that you get at least 25% PA returns on the overall corpus over the next 2.5 years. Other investing opportunities will be updated as and when they come through.

Be very wary of the IPOs that come through in 2014. The success of Just Dial is a pre-cursor by hot money to entice retail investors and tell them that the IPO success platform is back in India. Historical data suggests that over 95% of IPOs spell doom for retail investors in the long run. Sometimes it pays off better to stay on the road frequently travelled i.e. regular scrips like LT, NiftyBees, BankBees and ideally on SIP basis. For the Midcaps, go for index linked ETFs like M100 and JuniorBees. On the investment front, ignore short-term volatility. Since 2008, a lot of investors have been vary because the Nifty was in corrective mode. Post elections 2014, the story is expected to be much different and this is a once in a lifetime opportunity on Indian bourses. This is an opportunity one should not miss as an SIP portfolio of NiftyBees, BankBees, JuniorBees, LT, SBI, Axis Bank and ICICI Bank put together will yield a minimum 25% return per annum over the next 2.5 years.

Before moving further, let me zoom in to outlook for January 2014 specifically.
Here are the charts as on 27th Dec '14

Nifty Daily

Nifty Weekly
BankNifty Daily
BankNifty Weekly

From the week starting 6th Jan '14, the trend should get clearer. In all likelihood, price action is expected to be similar to that of Jan '12 though in lower proportion [that rally had started from 4531 whilst half of the current rally is already done IMHO] Critical time period are the 8-10 days after Makar Sankranti i.e. 15th Jan '14 onwards.

Critical Levels
Daily - 6280
Weekly - 6180
Monthly - 5970

So as long as Nifty manages to close above 5970 on 31st Jan '14, the uptrend remains intact. For traders, the daily/weekly levels are more significant and should change positions accordingly. If 6280 is breached on daily basis, it just means trim long positions. Short-term shorts should only be initiated after 6180 is breached on weekly basis.

Markets have been testing traders' patience for almost 2 months now and option prices have been absolutely crazy. One should avoid options for now and only use them as hedges for their futures' positions. The large moves either up or down should come through in the next 3-4 weeks.

Going back to 2014, the outlook for stocks has been spelt out clearly. The real estate market may take a short-term hit but the stage seems ripe for a royal upside in the property market. The pre-cursor to that is the introduction of Mortgage Backed Securities and the launch by IIFL is just the beginning. There will be many more coming in 2014.

Gold and Silver will slowly crawl back and by mid-2015 reach old highs. Oil prices will continue to be stubbornly up and petrol prices in all likelihood cross the 3 figure mark by end of 2014. [The gain in rupee currency will be offset by price rise in dollar terms. Moreover, with so many subsidies to take care of, petrol is the most logical target for the government to recover tax revenues]

The MCX debacle not withstanding, commodity trading will continue to soar in all likelihood through the NCDEX platform.

On the global markets front, 10% to 15% correction is likely but that again is very healthy and logical. Except for the Black Swan events, Nifty will run its own course this year and it may not be prudent to extrapolate western markets and anticipate movements on Nifty.

So once again, wishing all of you a very prosperous New Year 2014.

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