Well it has been a very exciting 2014 for global markets and more so for India. From mid-2013 to early 2014, I had sounded enough alarm bells indicating that India will have a strong equities performance, sweetness of which will depend on election 2014 outcome. I had given logical targets of 7200-7500 that would materialize after announcement of results. What was the outcome? Markets went past old highs of 6415 well before election results and the target of 7500 was achieved just a day after the poll results were announced.
That was for the positive part; even taking into account some sort of frenzy and euphoria, 8000-8200 was my best case hypothesis but the eventual values of Nifty / BankNifty were way beyond comprehension. Completely unexpected and that too, post-Diwali prior to which some key supports were broken [albeit a foxy move] So what to expect next? The hyper-bullish phase of clocking one of the fastest rallies is behind us now from Nifty's perspective. From August 2013 to December 2013, Nifty has rallied almost 65% from a baseline of 5200 to 8600 whilst BankNifty , CNX Mindcap and Nifty Junior have almost doubled. We are in the terminal stage of the rally for now and a long complex corrective price action awaits us that should commence by 2nd half of 2015.
Some profit booking session may continue in January and early February 2015 followed by a budget rally in March 2015. The markets have still not had any major negative trigger [Ukraine attack, ISIS, Russian Rouble challenges are all extremely small to have meaningful attacks on markets. There are knee-jerk reactions for a short duration and then the whole reversal is reversed with new peaks!]
Stock market crisis usually is preceded by large scale exits in the bond markets [it happened that way when the South East Asian currency crisis triggered or the Lehman Brothers episode surfaced] Bond markets have far greater investments and when it comes to flight to safety vis a vis a sell-off in local currency and move to safer haven currencies like USD, GBP, CHF, EUR etc, it starts with bond markets and then spreads to equities. Apart from Russia, very small amounts of capital in emerging markets have seen exits so far.
Election years are usually positive and 2014 saw a lot of elections in emerging nations; almost all had positive results. In 2015, the major election is in UK [already developed and has a strong currency base against most other currencies right now] Unless something drastic happens in first half of 2015, the current party in power seems poised to return to power.
For India, this will be the first time the new government will table its 100% self-drafted budget policy, basis an adequate time frame for preparation and a regular scheduled release unlike 2014.
GST roll-out will be a big plus and a rate cut from RBI are almost a given now. One must also remember that most of the medium to longer term positives are already in the price. The rally that will follow these announcements will just be knee jerk reactions for a fortnight before prices rationalize again.
The commodity price crash against strong dollar, bringing down inflation is a very temporary phenomenon. The zone commodity prices are hovering around right now has taken out incentives to produce for a lot of firms. Gold sees drop in production the moment prices fall below USD 1250 / ounce. Similarly for other base metals like copper, zinc, aluminium, there is literally no incentive for major producers to go ahead as market prices are below costs!
If one looks back at my hyper-bullish forecast for 2014, I had also taken into account social mood. Specifically, I pointed towards the general public sentiments in media, fashion etc. I had mentioned how people are lapping up towards unconventional movie themes and different kinds of television shows. I also mentioned general people outlook towards culinary television shows, reality shows and public spend on fashion.
As a pre-cursor, one can see that the social mood is gradually waning in these segments. After some dream runs for movies like Dhoom3, Kick, Happy New Year and of late PK, the last quarter of 2014 was a disaster for Bollywood. Superstars, mega-budgets and high profile marketing could not bring in too much cheer to Box Office numbers. A reality show like KBC with a 7 crore prize could not garner TRPs like the earlier seasons. These are pre-cursors indicating what to expect over a 6 month to 12 month horizon on capital markets.
So what do we expect for 2015;
The big picture is that the spectacular and unexpected rally after Diwali 2014 has kept hopes of testing 8800 levels on the upside. On the downside, it is safe to assume that we can test at least 7440 levels once in 2015 before any major rally. Looking at historical data [Jan '08, Nov '10 etc] whenever Nifty has rallied too much in very short time frames, there is a lot of consolidation and profit booking. The severe correction in 2008 was the result of unforeseen dangers externally; likewise, the correction post Nov '18 was a profit-booking correction that went on for almost 18 months in terms of time and apprx 30% in terms of price.
Whilst the correction in terms of price may not be so steep for Nifty in terms of scale, safe to assume that time correction will be on expected lines. Remember that this is the outlook on the basis of lack of external events. Also note that markets tend to discount the future well in advance. So most of the positives as I mentioned earlier are already in the price.
On the downside, a normal correction without externalities will take us to about 7440 levels. What news will trigger the same, I cannot say. However, Im reasonably sure that this critical level will be retested in 2015. Should there be any major external trigger like Lehman Brothers, the correction may extend further to 6600 and the worst case downside is expected to be 5944-5970 levels.
Please note that I am not suggesting this will happen. These price levels are in cases of extreme conditions that trigger flight of capital from India.
As I have been mentioning earlier in 2014 as well, the new technical bottom for Nifty is in the 6080-6200 band [similar to the 4800-5200 band in 2011-2012] The 7200, 6800 and 6600 levels are extremely strong. It will take a lot of downward pressure to break the 6800-7200 zone. Similarly 6415-6600, which was a major resistance band when the upward march above 6300 levels took place are going to be extremely strong. Also it is very difficult to contemplate extreme events that can lead to such price levels.
So staying on the rational course of accumulation, distribution and consolidation, stocks appear to be in a distribution phase. 2015 under normal circumstances has a range of 7400-8800. This is not really going to help on daily/weekly futures trading. These will have to go as per support / resistance levels.
From an investor's perspective, this is not the time to enter any of the major Nifty 50 stocks. Even if one feels left out, for now it is better to go on SIP basis. The major Nifty levels where one may consider additions are 7200, 6600, and if 6000 levels show up, it will be a bonanza for delivery based buying.
Assets that can provide healthy returns in 2015 [with a 2-3 year outlook]
1: Gold: In terms of dollar pricing, the 1000-1200 dollars an ounce is a fantastic zone to accumulate. In rupee terms for India, considering range for USD-INR from 56-66, INR 23k / 10 gms is a fantastic bottom [21k worst case scenario]. As I have been saying time and again, gold had a dream run for almost 13 years from USD 400 / ounce to USD 1900 / ounce from 2000. It is fairly logical for a corrective and consolidation phase after such a massive rally. We are already through a major corrective phase in gold over the last 20 months. It is very rare for assets like gold to have such a prolonged period of consolidation giving ample time for investors to buy into gold in physical form or ETFs. With a 3-5 year horizon, gold will resume its next phase of bull run and surpass INR 50k / 10 gms mark.
2. Silver: Whilst the industrial utility of silver is much lower in the world of electronics and nanotechnology, there is still no doubt that silver has a lot of value. The longer term price target remains INR 75k / kilo.
3. Crude Oil: Unfortunately in India, there is no way of lapping up crude oil. It has corrected over 50% from recent highs and the most it can correct is about 10% to 12% further. There are rumors that MCX Crude may soon be available in mini-contracts. If the mini-contracts come through, then the delta factor will be about 1:25 [Spot to futures impact]. With adequate margin, one may look into buying into crude mini futures with a 2-3 year outlook to more than double the investment.
4. Real Estate: I know that I have myself forecast a major real estate bust cycle this decade in my other Great Indian Banking Paradox blog article. However, that can only happen when there is an outrageous mania in the real estate segment that usually is accompanied by excessive heating of REITs. In India, we will see the introduction of REITs over the next 2-3 years. Going by historical data across mature economies where REITs have been introduced, the first 5 years after REIT introduction into an economy inflates real estate prices by 2x-4x. Although current valuations for real estate in major metro cities look stretched, it is safe to assume that this is the beginning phase of the boom.
So if one has a reasonably good sum by booking out of equities this year, it makes a lot of sense to invest in Indian real estate. A piece of land or a flat is something that one has to take a personal call on depending on preferences, willingness to pay, convenience of resale etc. Just as we saw a phenomenal rally in Indian equities in the last 18 months, a similar rally can be expected in Indian real estate after the REIT boom kicks in.
5: FMPs: Our good old Fixed Maturity Plans will continue to deliver 11% post-tax returns. Whilst FD rates keep changing as per RBI's benchmark rates, most FMPs have an inverse correlation to benchmark rates. The lower the benchmark rates, the higher will be the asset values in most Fixed Income instruments.
Longer Term Nifty Charts
Nifty Monthly
This is a very long-term chart taking a support line through the major bottoms for the last 15 years. As per this chart, it is very difficult to go below 7400! However, remember that when we are looking at such longer term charts, there are spurts above / below such lines. The crucial level is 6600 and that is where one may see a lot of buying. The markets may go down further from those levels only to reverse back. To have a look at such a trend, look at the Tata Steel charts for the last 3 months. The firm technical bottom was about 250. A lot of accumulation took place here though prices collapsed further to 200 only to reverse back spectacularly.
Also the above chart now shows how the earlier resistance band of 6300-6350 is now a strong and firm support.
Specific charts for trading Nifty and BankNifty in January '15
Nifty chart is clearer; for the next 3 months or so, it has an incomplete pattern on downside for about 7800 or so; at the same time, it has an incomplete pattern of 8800 on upside. Which end of the range comes first, time will tell but from current levels, there are some good moves expected on either sides.
BankNifty has moved completely in uncharted territory. As we can see from the charts, once BankNifty moves a significant quantum, it spends a lot of time in consolidation. The current uptrend in BankNifty should likely see a topping out around 19200-19400 zone after which there will likely be a price correction of about 1500 odd points but the time correction can be expected to be greater.
For January, the critical levels for Nifty are 8380 and 8280 on downside on daily basis [8225 on weekly basis]. On upside, the critical number is 8625. In Dec '14, we saw a fall from 8625 to 7965. 61.8% retracement comes to 8380 and we are there. The current uptrend has steam to go to 8425-8480 levels also. However, one must not lose sight of the larger trend and that has kept both bearish n bullish scenarios open pre-budget.
For BankNifty, the crucial support band is 17400-18k levels. As long as these hold, the chances of a sharp bounceback in case of falls will be fairly easy. Since the upside is in uncharted territory, it is difficult to hazard a critical number on upside [though the pattern is suggesting a likely top around 19200-19400 zone]
Please note that these levels are on daily / weekly basis and hence keep changing almost daily. The twitter feed will be updated as and when such critical numbers develop. To summarize, the first quarter of 2015 will be very exciting for traders. A lot of opportunities are anticipated on both upside and downside. Investors have had their bonanza already ;)
Wishing all readers a very prosperous 2015
That was for the positive part; even taking into account some sort of frenzy and euphoria, 8000-8200 was my best case hypothesis but the eventual values of Nifty / BankNifty were way beyond comprehension. Completely unexpected and that too, post-Diwali prior to which some key supports were broken [albeit a foxy move] So what to expect next? The hyper-bullish phase of clocking one of the fastest rallies is behind us now from Nifty's perspective. From August 2013 to December 2013, Nifty has rallied almost 65% from a baseline of 5200 to 8600 whilst BankNifty , CNX Mindcap and Nifty Junior have almost doubled. We are in the terminal stage of the rally for now and a long complex corrective price action awaits us that should commence by 2nd half of 2015.
Some profit booking session may continue in January and early February 2015 followed by a budget rally in March 2015. The markets have still not had any major negative trigger [Ukraine attack, ISIS, Russian Rouble challenges are all extremely small to have meaningful attacks on markets. There are knee-jerk reactions for a short duration and then the whole reversal is reversed with new peaks!]
Stock market crisis usually is preceded by large scale exits in the bond markets [it happened that way when the South East Asian currency crisis triggered or the Lehman Brothers episode surfaced] Bond markets have far greater investments and when it comes to flight to safety vis a vis a sell-off in local currency and move to safer haven currencies like USD, GBP, CHF, EUR etc, it starts with bond markets and then spreads to equities. Apart from Russia, very small amounts of capital in emerging markets have seen exits so far.
Election years are usually positive and 2014 saw a lot of elections in emerging nations; almost all had positive results. In 2015, the major election is in UK [already developed and has a strong currency base against most other currencies right now] Unless something drastic happens in first half of 2015, the current party in power seems poised to return to power.
For India, this will be the first time the new government will table its 100% self-drafted budget policy, basis an adequate time frame for preparation and a regular scheduled release unlike 2014.
GST roll-out will be a big plus and a rate cut from RBI are almost a given now. One must also remember that most of the medium to longer term positives are already in the price. The rally that will follow these announcements will just be knee jerk reactions for a fortnight before prices rationalize again.
The commodity price crash against strong dollar, bringing down inflation is a very temporary phenomenon. The zone commodity prices are hovering around right now has taken out incentives to produce for a lot of firms. Gold sees drop in production the moment prices fall below USD 1250 / ounce. Similarly for other base metals like copper, zinc, aluminium, there is literally no incentive for major producers to go ahead as market prices are below costs!
If one looks back at my hyper-bullish forecast for 2014, I had also taken into account social mood. Specifically, I pointed towards the general public sentiments in media, fashion etc. I had mentioned how people are lapping up towards unconventional movie themes and different kinds of television shows. I also mentioned general people outlook towards culinary television shows, reality shows and public spend on fashion.
As a pre-cursor, one can see that the social mood is gradually waning in these segments. After some dream runs for movies like Dhoom3, Kick, Happy New Year and of late PK, the last quarter of 2014 was a disaster for Bollywood. Superstars, mega-budgets and high profile marketing could not bring in too much cheer to Box Office numbers. A reality show like KBC with a 7 crore prize could not garner TRPs like the earlier seasons. These are pre-cursors indicating what to expect over a 6 month to 12 month horizon on capital markets.
So what do we expect for 2015;
The big picture is that the spectacular and unexpected rally after Diwali 2014 has kept hopes of testing 8800 levels on the upside. On the downside, it is safe to assume that we can test at least 7440 levels once in 2015 before any major rally. Looking at historical data [Jan '08, Nov '10 etc] whenever Nifty has rallied too much in very short time frames, there is a lot of consolidation and profit booking. The severe correction in 2008 was the result of unforeseen dangers externally; likewise, the correction post Nov '18 was a profit-booking correction that went on for almost 18 months in terms of time and apprx 30% in terms of price.
Whilst the correction in terms of price may not be so steep for Nifty in terms of scale, safe to assume that time correction will be on expected lines. Remember that this is the outlook on the basis of lack of external events. Also note that markets tend to discount the future well in advance. So most of the positives as I mentioned earlier are already in the price.
On the downside, a normal correction without externalities will take us to about 7440 levels. What news will trigger the same, I cannot say. However, Im reasonably sure that this critical level will be retested in 2015. Should there be any major external trigger like Lehman Brothers, the correction may extend further to 6600 and the worst case downside is expected to be 5944-5970 levels.
Please note that I am not suggesting this will happen. These price levels are in cases of extreme conditions that trigger flight of capital from India.
As I have been mentioning earlier in 2014 as well, the new technical bottom for Nifty is in the 6080-6200 band [similar to the 4800-5200 band in 2011-2012] The 7200, 6800 and 6600 levels are extremely strong. It will take a lot of downward pressure to break the 6800-7200 zone. Similarly 6415-6600, which was a major resistance band when the upward march above 6300 levels took place are going to be extremely strong. Also it is very difficult to contemplate extreme events that can lead to such price levels.
So staying on the rational course of accumulation, distribution and consolidation, stocks appear to be in a distribution phase. 2015 under normal circumstances has a range of 7400-8800. This is not really going to help on daily/weekly futures trading. These will have to go as per support / resistance levels.
From an investor's perspective, this is not the time to enter any of the major Nifty 50 stocks. Even if one feels left out, for now it is better to go on SIP basis. The major Nifty levels where one may consider additions are 7200, 6600, and if 6000 levels show up, it will be a bonanza for delivery based buying.
Assets that can provide healthy returns in 2015 [with a 2-3 year outlook]
1: Gold: In terms of dollar pricing, the 1000-1200 dollars an ounce is a fantastic zone to accumulate. In rupee terms for India, considering range for USD-INR from 56-66, INR 23k / 10 gms is a fantastic bottom [21k worst case scenario]. As I have been saying time and again, gold had a dream run for almost 13 years from USD 400 / ounce to USD 1900 / ounce from 2000. It is fairly logical for a corrective and consolidation phase after such a massive rally. We are already through a major corrective phase in gold over the last 20 months. It is very rare for assets like gold to have such a prolonged period of consolidation giving ample time for investors to buy into gold in physical form or ETFs. With a 3-5 year horizon, gold will resume its next phase of bull run and surpass INR 50k / 10 gms mark.
2. Silver: Whilst the industrial utility of silver is much lower in the world of electronics and nanotechnology, there is still no doubt that silver has a lot of value. The longer term price target remains INR 75k / kilo.
3. Crude Oil: Unfortunately in India, there is no way of lapping up crude oil. It has corrected over 50% from recent highs and the most it can correct is about 10% to 12% further. There are rumors that MCX Crude may soon be available in mini-contracts. If the mini-contracts come through, then the delta factor will be about 1:25 [Spot to futures impact]. With adequate margin, one may look into buying into crude mini futures with a 2-3 year outlook to more than double the investment.
4. Real Estate: I know that I have myself forecast a major real estate bust cycle this decade in my other Great Indian Banking Paradox blog article. However, that can only happen when there is an outrageous mania in the real estate segment that usually is accompanied by excessive heating of REITs. In India, we will see the introduction of REITs over the next 2-3 years. Going by historical data across mature economies where REITs have been introduced, the first 5 years after REIT introduction into an economy inflates real estate prices by 2x-4x. Although current valuations for real estate in major metro cities look stretched, it is safe to assume that this is the beginning phase of the boom.
So if one has a reasonably good sum by booking out of equities this year, it makes a lot of sense to invest in Indian real estate. A piece of land or a flat is something that one has to take a personal call on depending on preferences, willingness to pay, convenience of resale etc. Just as we saw a phenomenal rally in Indian equities in the last 18 months, a similar rally can be expected in Indian real estate after the REIT boom kicks in.
5: FMPs: Our good old Fixed Maturity Plans will continue to deliver 11% post-tax returns. Whilst FD rates keep changing as per RBI's benchmark rates, most FMPs have an inverse correlation to benchmark rates. The lower the benchmark rates, the higher will be the asset values in most Fixed Income instruments.
Longer Term Nifty Charts
Nifty Monthly
This is a very long-term chart taking a support line through the major bottoms for the last 15 years. As per this chart, it is very difficult to go below 7400! However, remember that when we are looking at such longer term charts, there are spurts above / below such lines. The crucial level is 6600 and that is where one may see a lot of buying. The markets may go down further from those levels only to reverse back. To have a look at such a trend, look at the Tata Steel charts for the last 3 months. The firm technical bottom was about 250. A lot of accumulation took place here though prices collapsed further to 200 only to reverse back spectacularly.
Also the above chart now shows how the earlier resistance band of 6300-6350 is now a strong and firm support.
Specific charts for trading Nifty and BankNifty in January '15
BankNifty has moved completely in uncharted territory. As we can see from the charts, once BankNifty moves a significant quantum, it spends a lot of time in consolidation. The current uptrend in BankNifty should likely see a topping out around 19200-19400 zone after which there will likely be a price correction of about 1500 odd points but the time correction can be expected to be greater.
For January, the critical levels for Nifty are 8380 and 8280 on downside on daily basis [8225 on weekly basis]. On upside, the critical number is 8625. In Dec '14, we saw a fall from 8625 to 7965. 61.8% retracement comes to 8380 and we are there. The current uptrend has steam to go to 8425-8480 levels also. However, one must not lose sight of the larger trend and that has kept both bearish n bullish scenarios open pre-budget.
For BankNifty, the crucial support band is 17400-18k levels. As long as these hold, the chances of a sharp bounceback in case of falls will be fairly easy. Since the upside is in uncharted territory, it is difficult to hazard a critical number on upside [though the pattern is suggesting a likely top around 19200-19400 zone]
Please note that these levels are on daily / weekly basis and hence keep changing almost daily. The twitter feed will be updated as and when such critical numbers develop. To summarize, the first quarter of 2015 will be very exciting for traders. A lot of opportunities are anticipated on both upside and downside. Investors have had their bonanza already ;)
Wishing all readers a very prosperous 2015
