On market direction

I had posted a change in prediction in stock advice thread a week ago when reforms materialised. My purchase of gold almost soured - but I am still hopeful that gold will hold steady due to dollar price of gold increasing proportionate to Rupee appreciation. 

Short term obviously Rupee will appreciate. It might peak along with a top of the intermediate uptrend in stocks which should play till Feb 2013 at least.

I think stocks will outperform RE in next 6 months.

If reforms continue at this pace and keep coming - this will be a major bull market start. Rupee will stay sub 50 as long as reforms keep coming and stocks keep performing.

If reforms falter - Rupee will fall. So it is all in the hands of Chidu and MMS - and the announcements and achievements in next 6 months and then the details of next budget and the direct tax code details and the goods and services tax.

The last will not get BJP state govt cooperation - but rest if implemented - you need to be in stocks - and Rupee will be strong.

If govt falls - Rupee will fall and badly

On SIP and stock investing

The only passive growth asset for which leverage is possible will always be RE. Otherwise you can do leverage for your business.

No leverage for gold, not stocks - and in bonds, you are the lever and banks do the leverage with your money !!!

And ANurag, SIP is a decadal thing - you have the accumulation phase during earning years. Then before retirement (or whatever projected end use like education or marriage) you have to time a good exit or use SWP to take out money and put into debt.

Dont bother about returns - it will come with a most un-anticipated jump - and many jumps - which nobody is nimble footed enough to catch just right.

Time frame for stocks should be 10 or even better 15 years. So stocks are useless while saving for a vacation or car or gadgets - dont even try. Education, marriage of children and retirement are the only things for which stocks are suitable.

With 10 years, you are likely to catch two bull phases in economy cycle, three if lucky. With 15 years, you are likely to catch 3 bull phases of industrial cycle, as many as 5 if you are very lucky.

You cant time it - staying invested is the only option.

Maximum 20-30% of your stocks you can time in or out based on your estimates of the likely market direction - but the bulk 70-80% of your money should always stay in the market. I myself have used timing - sometimes I have made money, never lost but definitely lost opportunity by reducing market exposure. And I devote a lot of time and effort in trying to time right and have basically given up. Buffet was right after all.

Stay invested for long term.

Best option when bull phase bloats your stock portfolio to huge proportions is to bleed out some money into a flat booking - since flat prices are less volatile. That way you will accumulate another category of investment which moves differently from stocks, with same or even better performance characteristics.

I am sure the last few days and weeks have drastically altered your view of your SIP funds - I myself am feeling rather satisfied. I feel a lot less satisfied with my PF and FD where I have similar amounts - returns with stocks are about 5 times more.

Thoughts on future direction for India's economic activity

I dont think you need to change the focus. There are reasons why droves of medical tourists, or retirees dont land up in India - and I dont see our people changing - so why would the reasons which drive away foreigners suddenly change?

 I see India doing more of the same.

 1. IT outsourcing. For this our currency has to weaken. But business is mature and not a growth area.

 2. Movement from 500$ per annum to 2000$ per annum per capita GDP. This requires minimum of govt action and minimum of education - ALAS - even this minimum is being denied currently. But it will come and will produce the most opportunity for capitalists

 3. Change of land use norms. Currently India laws are too restrictive on usage of farm lands. Once the owner of the farm land is able to do whatever he wants with his own land - and this is coming sooner or later - it is inevitable - there will be huge opportunity for capitalists to start businesses without massive capital being needed only for land.

 4. Modernization of construction. We are still following 70 year old British norms. Once we see better techniques being adopted, there will be a construction revolution. This will provide massive "highly skilled and well paying" jobs i.e. 700-1000 Rs a day instead of 70-100 Rs a day as seen at present. Total number employed will reduce, but the income and productivity will rise. REIT/private equity will do well once the sector opens up.

 5. Small independent businesses at village/town level. This will be the biggest opportunity. Microfinance companies will do well. So will factory builders.

 6. Education and training - mainly in vocational for plumbers (working copper pipes), carpenters (using machine tools), masonry (precast precision machines handling), electricians (using modern modern equipment and switch gear), heavy earth moving machinery handling.

 Where the future good stock IPOs/growth stocks will come :

 1. REIT

 2. Vocational training Institute

 3. Earth mover rentals

 4. Construction firms

 5.Capital goods manufacturers

 6. Small machine tool manufacturers (better quality than current cheap Chinese machine tools)

 7. Tiles

 8. Structural materials

 9. Aluminium products and frames

 10. Electric fixtures

 Almost all of the above industries are currently in small scales in India. Economies of scale and large scale manufacturing of these will revolutionise the way of life in India making things cheap - and getting skilled workers in good numbers.

Thoughts on recent economic and political events

Re: Rupee. For now, since policy action materialised (just when I had given up on it !!!!) Rupee will be strong. As long as Euro strengthens against dollar (maybe one month or so MAX) Rupee should be around 54 levels.

If even more policy action (more than the CRR cut) materializes and govt survives the next month without rupture - then Rupee can max reach 53 levels.

Gold will rise in dollars and so despite the rise in Rupee, Gold will be stabe/rise.

When Rupee will weaken again will depend on

1. US election results (too close to call) - I expect Obama close win - which is bad for the US economy and Indian economy - Rupee will fall, Indian stocks steady, Gold will rise. But if Romney surprises and wins, I expect good response in Indian stocks and Rupee up, gold steady.

2. How much diesel price rise cuts Indian demand - I expect probably nil - which is good for economy i.e good growth but with high inflation. Rupee will fall, Gold will rise.

3. How high Brent oil goes (125-130 levels or 150 levels) - 130 is tolerable with Rupee depreciation to 60 levels. Stocks will rise, Gold will rise. 150 means Indian recession with Rupee in free fall - stocks will be down, gold will rise a lot.

At some point, Rupee will start a down march again after the initial euphoria dies down. Gold will re-perform when that happens.

But for Punjabi's prediction of 44000, economy will have to be in shambles. 35000 is safe and good. Gold at >40,000 means bad news and a worthless currency.

But a lot depends on how active MMS gets. Right now he has demonstrated 2 things:

1. The opposition to reforms was REALLY STRONG. Hence the reason for not doing it - it is endangering his govt, just like nuclear deal. The events more or less excuse MMS for not acting earlier - he really didnt have an option.

2. He has planned ahead and must have tied up with DMK, Laloo and BSP in advance to save his govt. Just like BJP MPs had been bought up in advance for the nuclear deal vote - I am sure there are many turn coats in many parties which have already sold their parlimentary votes.

Both points bail out MMS. He wasnt a bad guy after all - he had no option.

His assessments and timings make him probably the most wily and astute politician active in India today. And he has used these abilities for the nation's good. If his govt survives - my hat is off. He would have done an encore performance to the nuclear deal if he survives and also cuts Mamta and Mulayam to size.

MMS is not the person whose "I am a good guy" persona was misleading us - the real MMS is real fox.

Maximising returns, minimising risk, planning in advance, catching adversaries off guard - he has achieved them all.

Now if we get some good follow up action on liberalization of licences - we are looking at some short term pain for long term gain.

I would sell equities into the current rally when Sense-x crosses 20,000 - but keep SIPs running and buy into any corrections which might materialise after the run up gets over (probably around Nov).

I agree with Wiseman's assessment that current QE cannot solve problems and imbalances in US and Europe.

US might however innovate and restructure their workforce out of the problems - so Ben has done the right thing.

While Draghi has probably done the wrong thing - it is probably better for Europe to take a hit on Bank balance sheets right away and kick out Southern Europe out of the Euro - single currency in the face of political disunity and differences in productivities is not sustainable. Better to let Greece, Italy and SPain depreciate out of the situation. That is the short term solution.

But long term solution is a political union. Again, more possible between Germany and northern European countries than old enemies like Italy, Greece and even France (though France should ideally make common cause with Germany).

I expect political vacuum in middle east as US retreats - Euro has to take over the reigns. Better if UK, France and Germany join a political force to maintain oil supplies and other similar problems - they have similar productivity and interests and should ideally join up with the help of smaller north European countries.

The run up to new year is going to be interesting - as newer chess pieces start moving on the board. And the totally fluid situation conjures up a new picture within a short while.

On Distributed Rural Urbanization

I would like to look at the rural urban divide differently - and I am sure history will prove me right.

[B]Because of poor politics, the urbanization of India has FAILED.[/B] We have the worst of cities and the highest of prices for commercial and residential lands and buildings.

The purpose of urbanization (which is to generate a producing class in manufacturing and services) is getting defeated - no commercial venture in India is viable because RE cost is too high. Because of this, every retail venture in India is in loss. Other industries fare no better. Power fails because of coal problem (corruption, crony) and SEB distribution problem (failure of urbanization). Water fails because of failure in civil engineering - again failure of urbanization.

More important - land cost is so high that industrialization is failing. Land acquired from farmers is either low cost but terrible deal for the poor farmer and is exploitative - or is so expensive that industry becomes unviable. Services cannot afford the high cost of commercial RE - so retail, software services etc are having big problems. And these are big employers potentially.

So what will happen?

One thing [B]will not[/B] happen - India will not urbanise like every other developed country. Urbanization has failed permanently.

Of the two other possibilities, one is that India fails to develop - fails completely as a state. This is unlikely.

Only other possibility is to work around the urbanization problem - by distributed low grade urbanization of rural areas.

This is what is happening and is reflected in the data you have provided. People on their own have started developing in tier 3 and smaller towns. Of the two things needed - communication and roads - one they have got (m-obile phone communication) - although Congress and Raja tried to derail that also.

Roads need govt action - currently they are missing, though Vajpayee started a great process which Congress derailed - but will slowly come.

So India is not going to develop in urbanization - but by means of distributed [B]rural-urbanization[/B]. Small cities smaller than Mathura, Bharatpur, Moradabad even - will develop where rural urbanization has happened despite lack of governance.

India will develop by rural urbanization process - given the land problems in cities.

On NREGA

Bikuji, while I agree with most of what you have said, I must say that your view of NREGA exposes a streak of leftism (and previous posts on environmentalism as well).

And I am quite opposed to both views. Both expose a weak understanding of society and environment. Both turn a good intention and subvert it into an evil effect. Both are enemies of India's progress.

Re: NREGA - it is a tax on the middle class to buy votes in the rural areas. Its effects are - high inflation and currency depreciation. Both very anti middle class.

It is the middle class which makes a country develop. The aim of development is to make the poor into middle class. Right now 83% of India's GDP comes from the middle class. Only 17% from agriculture. And this HAS to shrink further if India has to develop.

You cannot develop by punishing the already existing middle class, appropriating its justly earned monies and spreading it around to the poor. That ensures that middle class doesnt develop and makes the whole country poor.

It has happened over and over in India in just 60 years.

Congress has traditionally made India poor by destroying the middle class. This time is no different. They have brought back license permit raj and token redistribution of wealth in the poor rural areas (token because once the currency depreciates and money supply inflates, the dole loses its value very fast) - but fetches a few cynical votes for the token.

The only reason 2004 to 2008 worked is because the BJP policies were good - so good that the auto pilot mode was also wealth generating. Congress policies from 2005 itself were inflationary and anti growth and anti middle class. It took time for the evil effects to percolate through.

What rural people need is good governance - no corruption, good education, police which works (not extortion and rape in uniform). Until these come, rural people will not be uplifted, no matter how much you NREGA.

Good governance and Congress are historically the antithesis of each other. Or you can say - Nehru Gandhi family is the enemy of India. Their policies have impoverished and destroyed India in every way possible. (Because NArasimha Rao did great service to the country despite being COngres. And MMS under Rao was a good servant. The same MMS under the Gandhis has been a bad servant.

Janata Party of the 1970s and 1980s was equally bad. Basically socialism is bad for India. It is unfortunate that much of our educated people, who have a social conscience and the desire to do good work - are also socialists. If the do-gooders understood the strengths of capitalism and understood how it works - they would actually do some good.

Once should be sociable, socially conscious - but never a socialist/communist.

And similarly, one should be a scientists and understand how it works - and not an environmentalist who has a poor understanding of ecology but a massive do-gooder streak - they have more emotion and less common sense.

Both socialists and environmentalists are overactive people who do more harm than good. Because they fail to understand how complex systems like ecology and economy work.
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Predictions from a year ago

From a post made about a year ago:

2003 was a slow year

2004 was the year of new launches

2005 was the year of resale purchase absorption

2006 was the year of price increases

2007 was the year of massive price escalation in resale

2008 was the year of crash

2009 was the year of slow sales

2010 was the year of runaway price increase

2011 was the year of new launches

2012 will be the year of price stagnation and fall (Did this year old prediction come true? Not quite, but close enough - Mumbai stagnant, Pune and GGN stagnant for last 4 months or so)

2013 will be the year of resale purchase absorption

2014 will be the next round of runaway price increase

2015 might be the next bull phase massive price increases, in new and resale, similar to 2006-7.

Assuming the 7-8 year RE cycle seen all over the world repeats itself here

Re: Compuwala,

Bears are like the boy who cry wolf - they keep on screaming crash crash. And like a broken clock, they will be right some time or other.

I wrote this in beginning of 2011 in this same thread (page 366)


If you look at RE market in last 3 years, it has been following the textbook pattern of a 7-8 year cycle.

2007 flat prices peaked (previous cycle). Assume imaginary index for RE(IMex)=100

2008 prices crashed IMex =80 (Bears scream crash crash)

2009 RE firms got into debt trouble and there were distress sale of plots (Vatika plots GGN) and flats (Unitech Uniworld gardens 2 GGN). Many affordable flats were released. Imex = 70. (Bears keep screaming crash crash although crash is already over)

2010 Prices stabilised and went back to peak 2008 levels. IMex=100
(Bears scream crash crash - since prices are rising, they say crash is imminent)

2011 Prices stabilised, fresh inventory being continuously sold. Imex = 130
(Bears scream crash crash - just more imminent)
If we have a normal cycle, then we can expect:

2011: stable prices for rest of the year, rates reach peak of BAse rate 10%. IMex=130 (Bears scream crash crash continuously, always around the corner) (Did this prediction come true, made a year ago? - we did have stagnant prices for most of 2011 except that prices jumped from Nov 2011 to Feb 2012 or so)

2012: Decline in sales, end of industrial cycle upmove, poor economic performance. Lowering of rates by end of 2012, Bank base rates 8%. IMex= 100(Bears scream crash crash and say - I told you so!!!!) (Did this prediction come true? - seems to be a mild correction in some local markets, others are seeing appreciation)

2013: Delivery of inventory initial pipeline coincides with lower rates, good resale with loan possibility, industrial cycle starts upmove. Base rate 7%, IMEX= 140. (Bears scream crash crash - prices are not sustainable)

2014: Good stock market performance, good economic performance and good RE price upmove coincides (for residential and commercial and real estate RE). Nifty 10,000, IMEx 250, Base Rate 6%. (Bears scream crash crash - more imminent)

2015: Massive performance by nifty and real estate. Nifty 14000, IMEx 400, Base Rate 6% (Bears scream crash crash - but many people start to doubt the bears - they have cried wolf for 7 long years. By end of 2015 everyone decides it is stupid to stay out of RE market, because it keeps rising - so they all go and buy. Bears scream crash crash but no-one listened because they have been screaming this always)

2016: Continued delivery of flats results in massive oversupply, Real estate crashes. Massive inflation causes Rates jacked up to Base rate 12%. Currency crashes. Nifty Crashes to 9000 levels from 15000. IMEX crashes to 250 levels from 500. (Bears scream crash crash - I told you so!!!!!! - but poor suckers lose all their money, having timed their entry all wrong - they swear off real estate and stocks for ever

2017: Indistrial and RE cycle starts all over again.


Thats how things happen over and over again. Always has and always will.

Guy buying Nifty 5000 and exiting at 15000 makes massive profits. Guy buying at Nifty 6000 and remaining invested makes 50% in 2016 when markets crash to 9000 levels.

Guy buying IMEX 70 and exiting IMEX 500 makes massive profits. Guy buying IMEX 100 and remaining invested, makes 150% when IMEX crashes to 250 levels.

That is the way of this world. Those who understand cycles time entry and exit properly.

Bears scream crash crash: from 2010 posting IREF

If you look at RE market in last 3 years, it has been following the textbook pattern of a 7-8 year cycle.

2007 flat prices peaked (previous cycle). Assume imaginary index for RE(IMex)=100

2008 prices crashed IMex =80 (Bears scream crash crash)

2009 RE firms got into debt trouble and there were distress sale of plots (Vatika plots GGN) and flats (Unitech Uniworld gardens 2 GGN). Many affordable flats were released. Imex = 70. (Bears keep screaming crash crash although crash is already over)

2010 Prices stabilised and went back to peak 2008 levels. IMex=100
(Bears scream crash crash - since prices are rising, they say crash is imminent)

2011 Prices stabilised, fresh inventory being continuously sold. Imex = 130
(Bears scream crash crash - just more imminent)
If we have a normal cycle, then we can expect:

2011: stable prices for rest of the year, rates reach peak of BAse rate 10%. IMex=130 (Bears scream crash crash continuously, always around the corner)

2012: Decline in sales, end of industrial cycle upmove, poor economic performance. Lowering of rates by end of 2012, Bank base rates 8%. IMex= 100(Bears scream crash crash and say - I told you so!!!!)

2013: Delivery of inventory initial pipeline coincides with lower rates, good resale with loan possibility, industrial cycle starts upmove. Base rate 7%, IMEX= 140. (Bears scream crash crash - prices are not sustainable)

2014: Good stock market performance, good economic performance and good RE price upmove coincides (for residential and commercial and real estate RE). Nifty 10,000, IMEx 250, Base Rate 6%. (Bears scream crash crash - more imminent)

2015: Massive performance by nifty and real estate. Nifty 14000, IMEx 400, Base Rate 6% (Bears scream crash crash - but many people start to doubt the bears - they have cried wolf for 7 long years. By end of 2015 everyone decides it is stupid to stay out of RE market, because it keeps rising - so they all go and buy. Bears scream crash crash but no-one listened because they have been screaming this always)

2016: Continued delivery of flats results in massive oversupply, Real estate crashes. Massive inflation causes Rates jacked up to Base rate 12%. Currency crashes. Nifty Crashes to 9000 levels from 15000. IMEX crashes to 250 levels from 500. (Bears scream crash crash - I told you so!!!!!! - but poor suckers lose all their money, having timed their entry all wrong - they swear off real estate and stocks for ever

2017: Indistrial and RE cycle starts all over again.