Saturday, August 5, 2017

Outlook For Q3/Q4

So the Nifty has scaled the 10k mountain; much sooner than I had expected. My original outlook was that Nifty would cross the 10k barrier after the next national elections. So let us analyze the current major factors and the probable course of Nifty.

First of all, let us consider the banks. No matter how hard the government will make it for the bad loans from large corporates, recovery will be extremely difficult and time consuming. On the PSU banks front, there is only one way out; consolidate into 3 or 4 large banks on the "Too Big To Fail" scale. SBI has already done it and there will be more to follow soon. RBI has kept the rates at a very low level and it seems to have hit the rock bottom now. The threat of inflation is now grave. Liquidity in the market has been unprecedented.

The much awaited correction will perhaps come sooner than later but that does not warrant shorting the market. Although it may may not be correct fundamentally, the price on the ticker does not lie. Unless 8880 is not breached on the downside, it is a buy on dips market. What is the next peak for Nifty to scale? 11415 is the next peak we are looking at over the next 18 months.

Now there are no fears of a BrExit and the Germans are pretty much in control of the situation in Europe. To the extent Germans have control, the PIIGS crisis also will stay at rest. However, one needs to be very careful about selecting the stocks right now and midcaps and smallcaps are best to avoid. The way IPOs are soaring, one has every reason to be suspicious because unfortunately, a string of successful IPOs on Dalaal Street has always been a harbinger of darker days coming ahead. That being said, the levels Nifty is testing now will make the dark days seem like a little blip over the longer term. The larger trend is headed north and will continue to do so until the next election.

Now talking about politics, we may not have to wait till May 2019 for the next election outcome. In all likelihood, we may see the elections as early as Diwali 2018. The BJP has almost crossed out all the red flags for the second term in office. Maharashtra, UP, Bihar, MP, Rajasthan are all in the kitty. The youth power is with the PM; the Rajya Sabha numbers are also working out in favor. Unless something really bad like some black swan event takes place, I see no reason why this government will not come into power again.Therefore from institutional funds' perspective, India is pretty much a safe bet compared to other BRICS nations.

Outlook for commodities; in terms of prices in USD, commodities seem to have hit the bottom and are now starting the next leg up. From a technical and wave perspective, they may just correct once more to retest the bottoms and bounce back. nymex Crude oil may retest the USD 35 - USD 40 levels and then gallop back to USD 65 levels. Gold may just test USD 1150 levels once more, shake out some of the weak hands and then climb back to USD 1550 levels.

Sectors to avoid in India right now; telecom, base metals and media. It will take at least a year more for markets to fully price in the impact of Jio and there is a lot of room for downside there. If the commodities go for retesting old lows, then base metals will be the first to join the pack down. Media space is extremely volatile right now and far too overvalued. What happened to Airtel, Idea and Vodafone in telecom space will happen sooner or later to the media stocks. Hotstar, Amazon Prime and Jio TV will soon have a similar impact on conventional media. I also expect Jio and Amazon Prime to bring some disruptions to the DTH business. The day is not far when there will be just a small black box in our homes that will power the internet and tv content for us and that too at extremely affordable prices.

To summarize, every fall in the largecaps and large banks is an opportunity to buy. Commidity stocks, telecom stocks and media stocks are best avoided till the prices rationalize. Shorting can prove dangerous and there is room for a lot of upside. Wishing all of you greetings in advance for the upcoming festivities. Unless there is some major thing to worry about, my next post for Nifty will be around Christmas with outlook for 2018.