Sunday, April 14, 2013

Indian Stock Market could touch new high in 2014

Fall in gold and crude prices should repair 70% of the wounds that Indian economy is having while the rest will be cured by reform measures and change in govt. 

Gold supply far exceeding demand in 2013 and 2014 coupled with cost of production at $1200 vis-a-vis selling price of $1500 makes a case for massive selling in gold even at current levels. 

At InvestorZclub we have been very bearish on gold since the start of 2012 based on one very simple logic that if Aluminium which has huge application can trade at price 10-20 percent below the cost of production why should gold, which has almost no industrial application and is just collected for investment purpose, should continue to oblige miners with 50 percent margins.

Similarly crude as well has very negative outlook on the same lines of low cost of production vs high selling prices and fall in consumption demand. Gold and crude price fall put together should reduce India's current account deficit outlook for FY- 14 at around 4% of GDP which is an extremely good number relative to the FY-12 CAD of 5.2%.

Fall in crude prices coupled with appreciation of INR against USD (due to expected fall in CAD) will trigger fall in retail prices of petrol and reduced subsidy burden on diesel and kerosene resulting in much lower inflation and lower fiscal deficit for FY-14. Based on this the interest rates should fall by at least another 100 basis points till March 2014 giving boost to industrial activities and equities in general.

Also with election getting over by May 2014 most of the uncertainties will be out and equities could move up without any major hurdles on it's way. 

All these macro factors makes us very bullish on Indian equities over next 18 months with only one caveat that if any mishap happens in Europe, which seems quite unlikely in present environment, FII selling might led to significant fall in India and other equity markets globally.

If Europe dosen't witness any major casualty in future, there is a very high chance that Sensex and Nifty could touch new high by middle of 2014. But like all the previous upmoves select stocks will still outperform as well as underperform the markets. Hence one should position themselves in high quality names only and avoid sectors that would be affected by appreciating Rupee such as IT, Pharma etc while at the same time look at opportunities which could benefit from falling inflation, interest rates and Dollar such as undervalued Public sector Banks, Oil Marketing companies, select ferrous and non-ferrous metal companies etc.

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