ANALYSIS OF LAST YEARS REAL ESTATE FORECAST

FORECAST IN BLACK

ANALYSIS IN BLUE

2014 - The Year Ahead
(Indian Real Estate Scene in the first quarter of 2014)

The consensus of opinion on IREF is that the slowdown of 2013 will continue well into 2014. All the factors which caused the bear market of 2013 are even more active in 2014. Until the economy turns around, the industrial recession gets over, the job market recovers and inflation is controlled, the bear market will continue.

Came True

NCR market:The main Delhi market dominated by builder floors has seen actual reduction in prices from the peak by upto 30% in some areas. Dwarka which is one of the large micromarkets within Delhi dominated by apartments has also seen reduction in prices. Now that the correction is over, 2014 is likely to see stagnant prices.

Came True and prices continued to show mild decline in 2014 as well

In Gurgaon, the resale market in under-construction flats has almost died out completely, because of poor delivery record by real estate companies. Dwarka Expressway is the region with the maximal stagnation and absence of deals since the road infrastructure is yet to be completed.

Prices in completed complexes and ready to move (RTM) flats in Gurgaon, especially in Sohna Road are stagnant with few takers at such high prices. There are no price drops since the investors are holding at current prices and are likely to continue to do so in 2014 as well. Further price escalation in this category is unlikely in 2014 although price drops are also not on the cards. Much of the inventory of ready to occupy flats is already in the hands of the end users or long term investors.

Came True and prices continued to show mild decline in 2014 as well

Prices of under-construction (UC) flats in Gurgaon on the other hand are likely to correct in 2014. In 2013, deals died out, but the prices were stagnant. In 2014, the prolonged stagnation, demand for payment from builders and no visibility of further price appreciation is likely to see liquidation of holdings by investors ready to book the remaining profit and limit outgo as constructions complete. This is therefore an opportunity for end users to strike good deals. The maximal such deals are likely before the central and Haryana assembly elections which are about 5 months and one year away respectively. Potential completion premium, usually estimated at 30% is likely to reduce to a much smaller number of around 5 to 10% and thus the benefits of holding on to the flats has reduced for investors. This is likely to result in dropping resale rates of under-construction property. The reduced completion premium will be more marked in Dwarka Expressway since the road and other infrastructure is lacking and hence end users will not wish to move into suboptimal living conditions. In contrast Golf Course Extension Road might maintain premium due to better surroundings and living conditions.

Came True

Plot market is stagnant in Gurgaon in central and peripheral locations and this is likely to continue in 2014, making it unattractive for short term investors. Because of inventory overhand in apartment segment and escalating construction costs as well as changing trends of end user preference, very few people are constructing builder floors in Gurgaon.

Came True

NOIDA: A similar stagnation of prices to Gurgaon is likely to be seen in NOIDA and Greater NOIDA West, but to a lesser extent since NOIDA has more middle income apartments rather than luxury apartments and hence downside is limited. Since almost all builders have drastically slowed on delivery, and because middle class end users are ready to occupy flats even without infrastructure due to affordability factor, a potentially larger completion premium of 20-30% is likely in NOIDA, quite the reverse to Gurgaon where completion premium is likely to reduce, since most of the property is in the luxury sector. Thus majority of NOIDA investors are likely to hold through for long term and a stagnation in prices is likely throughout 2014 without the anticipated price falls of Gurgaon.

Came True and prices continued to show mild decline in 2014 as well

More peripheral locations in the region like Yamuna Expressway, Greater NOIDA main, Kundli and Faridabad are unlikely to see much activity in 2014. Prices are likely to fall in these regions, but more dramatic will be the absence of resale activity as end users stay away.

Came True

Mumbai: Stagnation in main city is expected. Suburban locations are likely to see reasonable price performance linked to Indian economy coming out of recession. Stagnation in the 5000-10000 psf price range and better performance in the 3500-5000 psf price range is likely.

Came True

Bangalore: Saturation of the Bangalore market in the last two years will lead to stagnant prices but slow and steady off take by end users on the back of numerous launches seen in 2013.

Came True in most locations. Some locations fell

Chennai:If industrial revival takes place in latter half of 2014, then Chennai might see a good number of launches in the affordable housing segment in the periphery. As the infrastructure projects slowly get completed, a better real estate market with new launches as well as redevelopment in plotted segment is possible.

Did not happen

Investing in Property in 2014:

In view of the slowdown, property is a poor sector for investment.

Came True

Long term investors looking to buy property for post retirement self use or for holding periods of over 10 years can enter in select locations, cities and segments and look for bargains. The threads on “distress sale in depressed market” on IREF, located in multiple cities, might be a good place to start for this purpose.

Certain general rules for real estate investment in a slowdown can be kept in mind.

1. In a bear market, one should select property in prime locations and not in peripheral locations, since prime locations will be the first to reverse price direction and will give the most sustained returns once the bull market returns
2. In a bear market, one should invest for the long term. For property, a time frame of 15 years or more is ideal.
3. Short term flipping for quick gains on leverage should not be attempted in bear markets. This technique is reserved for bull markets.
4. The most depressed prices in distress sales will be in luxury property and in plots. These will rise the most when the market turns. Deep pocketed investors with the ability to pick up the distress sale and holding through the uncertainties of the bear market will reap the maximal rewards. Deep pockets and lack of leverage will amplify returns in bear markets – thus bear markets make the rich even richer because they alone can afford to buy and hold. This is in contrast to bull markets where short term holding and leverage amplifies returns and risk takers benefit rather than long term holders.
5. The safest investment for middle class investors in a bear market is already built ready to register flats in the affordable segment in the main central areas of the city with existing infrastructure
Luxury property as a whole is better avoided for the year 2014. This is because prices are already high and it is better to wait for lower prices and for bargains to emerge. As the luxury flats booked by investors slowly get completed, investors will be ready to negotiate with bargain hunters.
Plots are also avoidable because of the existing high prices and the lack of performance in plots in the central areas of Gurgaon even during the bull market of 2010-2012. The higher prices for construction of builder floors on plots has made them expensive and out of reach for many. Buyers are also preferring to live in apartment complexes due to better security and amenities. As such, a changing preference of people over time makes it difficult to extrapolate previous price behavior of plots in the past 50 years. Waiting for better bargains but also actively looking for bargains would be prudent for property investors.

Property in the affordable range of 2500 to 5000 psf range will be the best segment for entry, for both end users and investors, due to limited downside.

All of these were correct advice

The main requirement for a boom in property market is a recovery from the current industrial recession. Until the industrial revival generates more well paying jobs, the real estate market cannot revive. The industrial revival is likely to happen in the next 2 years based on cyclical factors, however the strength of the industrial revival is crucially dependent on the general elections of 2014. A strong decisive pro-industry government will cause a dramatic improvement in the industrial climate and a sustained stock market performance followed by an equally sustained real estate market performance will follow. A fractured mandate will cause a weak revival but consequent turbulence in exchange rates can have unpredictable results on real estate price inflation. High imported inflation, escalation of raw material prices, escalation of capital cost etc can have paradoxical results in the real estate market by making the cost of new construction prohibitive. Existing property which is registered may therefore become more valuable while under construction projects might be abandoned.

The prudent real estate investment is therefore to buy only ready to move ready to register flats in the affordable range in central locations and having good infrastructure – or to wait for the general elections and perhaps the Haryana elections also to get over before making any fresh commitments into property market.

As with equity, the best option is to wait for the general elections to get over.

The best locations for investments in 2014 are:

1. Chennai
2. Bangalore
3. Dwarka in Delhi/NCR
4. RTM property in Thane and other similar locations in Mumbai

The locations to avoid for 2014 are:

1. Dwarka Expressway, Yamuna Expressway, Kundli, Faridabad for location
2. Under-construction property in NOIDA, Gurgaon, Mumbai suburbs, Pune – in all of these locations prefer property which is ready to move and register
3. Plot investments in all locations
4. Land in tier 2 and tier 3 cities – prefer ready to move built up property only

Despite property being in a bear market, it is a good hedge against Rupee depreciation in the long run and hence every person should have some exposure to property. Buying small ready to move in flat (I BHK or smaller if salary is inadequate) based on a small portion (<20 a="" always="" and="" any="" arise="" at="" be="" br="" buying="" can="" does="" done="" emi="" for="" going="" investment="" not="" of="" prudent="" question="" salary="" such="" time.="" timing="" towards="" would="">
All of these were correct advice

ANALYSIS OF LAST YEARS PREDICTIONS

PREDICTIONS IN BLACK

ANALYSIS IN BLUE

Predictions for 2014

I am making this briefer than last year because the main problem is the Indian elections. Everything else depends on that. I have already written on elections.

Broad predictions for USA

Politics: Not much to happen. Budget issues should go through with wrangling

Democrats managed to lose both houses. But budget issues went thru as expected

Economics: Slow improvement throughout 2014 is likely. Jobs will keep growing as the workforce retrains. Corporate investments will continue to be slow and the 2 trillion cash pile with corporate will still not get fully deployed.

Came true

Fed: Likely to pause taper after the bond rate reaches some 3.25 to 3.5 5 and then keep rates at around this level for the remainder of 2014. Short term rates will remain 0. Probably the comfort level for the bond rate is likely to be achieved around 40 billion repurchases per month levels and this should be achieved around April 2014.

They managed to finish tapering after all. Economy did better than expected. I was majorly wrong on bond rates - currently 2.1 to 2.2. About half of my expectation.

Specfic predictions:

Stocks – stagnant. Dow 17000 by end of 2014.

Came true

Bonds – slow fall to bond rates of 3.5% or so, as targeted by Fed

Wrong prediction. Bonds went higher.

Dollar strong. Dollar index 83-85 by end of 2014

Came true

REIT – Expect about 5% annual return from REITS.

Came true

Real estate – stagnant in both old and new areas after recent run up

Came true

Gold – stagnant at about 1150-1250 range.

Came true

For Indian investor: US market can be completely avoided, with the sole exception of US REITS for the sake of 5% dollar denominated returns.

Came partly true. REITS did well but US market returns were very good

Europe Broad Predictions:

Politics: Conservatives and Christian Democrats continue in West Europe.

Came true

Economics: Slow grind without too much out performance by both UK and German companies.

Came true

Steady migration of East Europeans into both these economies should help achieve 3-4% growth for 2014.

Came true for UK.

France less than these two. Italy slow improvement in manufacturing. Spain and other lower country Europe stagnant.

Came true

East Europe good steady growth of 3-4% based on better jobs for their population, increased training levels and also based on remittances from expat workers.

Came partly true. Local East Europe economies didnt do as well as expected

Transatlantic trade block:

This is a major development for 2013 – and presages increased economic co-operation between the North Americans and the Europeans. UK sitting in the middle is likely to be the biggest beneficiary of this future development of a 40-50 trillion GDP economic superpower which is well on the way to being created. This development dwarfs all previous trade zones and will bring great economic benefits. Central to this trade block is the export of energy from USA and the export of engineering technology by Germany. This trade zone is likely to benefit from the upward migration of the Eastern Europeans and the Southern Europeans to higher levels of productivity and will involve increased transnational labour movements in the technology, health care and services sectors. A resurgence of manufacturing in USA is likely to be seen, based increasingly on Mexican workforce moving from 10000 to 25000$ per capita per annum productivity. The world has not yet realized that this massive economic co-operation zone is being created as we speak and that it is this trade zone which will dominate the rest of this century, not China.

The existing Euro zone is destined to break up because of high differences in productivity levels and work cultures – and the transatlantic trade block with individual treaties by each country with major partners is likely to replace the Euro zone. This is a major change in global economics and an early spot of these changing trends can make you a great deal of money. It is not possible for one central bank to set policy for 2 zones with different productivity – that is the main realization which has dawned from the Euro crisis. It is unlikely that Germany and Netherlands will give up their central banking independence for increased trade when the same trade is equally possible over a larger transatlantic trade block with reduced barriers and more advantageous trade agreements.

UK is likely to be the epicenter of the transatlantic trade block and will greatly benefit economically- once again underlining that the English, who kept Bank of England and their own currency are an intellectual super power who have outsmarted the entire world for the past 250 years and continue to dominate even now. Ports and logistics will benefit greatly – UK, Denmark, Norway and Netherlands will all get a piece of this massive cake.

In a way we are harking back to the economics of 1830 to 1870 when Victorian Britannia ruled the waves and the great economic expansion of Europe took place. The basic building blocks of such an economic transition and expansion are on the cards. There has been a 20 year stagnation in productivity of Europeans and Americans. It is likely that better trade, removal of barriers, more manufacturing automation will change this. Germany has already shown the way and rest of Europe and mainland USA is likely to follow. Per capita GDP by 2030 might be 75000 dollars per capita per annum in constant dollars i.e. a 50% increase in productivity of existing population. Add to this a 20% increase in population due to migration of Mexicans and Eastern Europeans over this time period means a 70% increase of total output from 30 trillion to 50 trillion dollars.

If and when Germany leaves Euro, there will be a dramatic 50% response from German stock markets with Dax touching 15000 levels. If UK leaves Euro zone trade restrictions, then again, a dramatic 50% response of FTSE to 12000 levels.

Starting to come true with UK debating on remaining within the Euro. These economic movements likely to play out over next 2 to 3 years

Specific Predictions for 2014

UK: Stocks up. As the block takes off, a spike in FTSE upto 10,000 might occur

Came partly true. FTSE topped out at 7000 only.

UK: Real estate flat. Prices have already run up

Came true

UK: Banks up. Bank of England rates stable for next year with no policy changes for now

UK eased a lot. So wrong prediction. There was insufficient strength from the economy to achieve the prediction.

UK Sterling: likely to strengthen further by 10% over 2014.

Wrong. Sterling strengthened in 2013 but largely static with some weakening against Dollar.

Germany: Stocks flat. Euro zone rates from Draghi likely to be stable.

Stocks were up. Draghi cut

Euro is likely to weaken over 2014 as and when the fissiparous tendencies take hold.

Came true

Transpacific Trade Block

This is the other major trade block which is taking shape, more specifically directed against the Chinese Axis. Likely to be a military-political-economic alliance between Japan, USA, South Korea, Taiwan, Singapore, Malaya, Indonesia, Australia and Vietnam. Apart from the US production of 15 trillion already counted with the trans atlantic alliance, this includes 5 trillion of Japan, 1.5 trillion of Korea, 1.5 trillion of Australia and 1 trillion of Indonesia with the rest small change adding up to another trillion. Assuming growth in Japan GDP to 6 trillion, that means 10-12 trillion of GDP which is one and a half times that of China.

Japan and USA would love to include India within this block but Indians so far are being stupid. Japanese overtures, including the recent visit by the emperor in this regard are however very important. If we get NaMo as PM and republicans in next US elections, then India will be a full partner within this alliance. But if the democrats win and we have a third front in India, then India will get bypassed once again.

These changes will undermine the existing economic blocks in which China has influence – the Japanese investments in Chinese manufacturing, Taiwan investments in mainland China and the South East Asian trade, This trade block is specifically anti Chinese and hence India has much to gain from this alliance.

This is not yet in play but likely to crystallise based on the actions of Modi. A republican win for Jeb Bush would be needed to push this into major action

The Indo Gulf trade block

This is a traditional 4 millennia old trade block – existing from Indus valley civilization, based on sea coast geography - which has been ”blocked” due to the religious divide (Hindu Muslim and Shia Sunni). Once again, if NaMo comes and if Pakistan jettisons the Chinese axis in favour of the Transpacific alliance – then this block can take shape once more after 2 centuries of atrophy under European colonial rule. The shifting sands in Iran are key to this – the cooption of Iran away from China might take place after recent events happening with USA – Iran’s big deal.

Traditionally the Persian Gulf with Oman, UAE/Dubai, Basra/Kuwait, Iranian coast, Karachi and the Kutch ports had been a major trade zone – the biggest in the ancient world. Currently Iran with 500 billion, Soudi with 800 billion, UAE with 400 billion and others with 2-300 billion GDP are mainly oil based economies. Trade related (non oil) GDP of these countries are maybe 500 billion in aggregate, including the contribution of Kutch and Karachi. By 2030 this can quadruple to 2 trillion dollars exclusive of oil. Add to this the transshipment of oil from central asia (Khazakhstan, Azerbaijan, Turkmenistan etc) and the potential increases to about 3-4 trillion dollars of new GDP over and above existing GDP. That makes it a great growth area.

More importantly the UAE i.e Dubai and Abu Dhabi coast sitting in the middle of this zone and ready to offer peaceful employment to professionals and industrial workers from everywhere – mainly India especially Malayalees - are sitting on a manufacturing possibility as well. It is possible that the population of UAE might cross 15 million people by 2030 i.e double from current 8 million levels, mainly by expats – and its GDP might cross 1 trillion dollars. Peace in the Persian Gulf would mean a drastic lowering of the risk premium and a tripling of shipping size by 2030.

Essentially, the UAE can provide a zone of peace, law and order and good governance with great infrastructure – and import the manpower from the surrounding countries of South Asia who have high population and good capabilities currently unharnessed due to poor governance – to generate wealth. The model, going on for 30-40 years, has endured well and has reached a take off potential. The recent expulsion of Saudi Expats is likely to give a ready pool for UAE to expand – and the UAE is a Anglo American controlled area – non Sunni Islamist to boot – and is likely to be encouraged to expand at breakneck pace by the Anglo American Alliance. As US moves closer to Iran and reaches equidistance from Saudi – the UAE is likely to be coopted by the Anglo Americans to be a counter weight and demonstrate an alternative model to Saudi Arabia.

Political stability, peace and a major change of Iranian, Pakistani and Afghan mind set is needed for this development. Currently things are hanging in the balance – in all 3 countries.
Of these, the most mature and advanced mindset is in Iran, thanks to its history. The Khomenian regression seems to have largely run its course. Recent deft handling of the nuclear crisis portents well for Iranian integration.

Afghanistan and Pakistan are unbalanced and very poor states. Poor education levels of Afghanistan mean that it can never benefit from the trade – and hence it is likely to be a spoiler.

In Pakistan, a shift in the balance of power away from Punjab and towards Sind and Karachi will be resisted by the Army. But large number of capable professionals can still tilt the balance. My own estimate is that Pakistan will not change or will change after many years – maybe 5 + years and only after an economic crisis.

So the push for this block has to come from Indo Dubai and Indo Iranian Central Asian energy pipeline spearheads – with Anglo American support - which can only happen with good leadership from the like of Modi. Socialists (third front/AAP/ Congress/Communists) are not capable of such vision – India under these have always had poor vision in commerce and foreign policy.

The chances of any of this happening in 2014 are basically nil. But for the first time, the potential has reared its head thanks to the recent Iranian shift – and this fluid situation is worth watching and India’s foreign affairs ministry should try to influence this. Setting up Indo-Dubai Free Trade Zones in Gujarat, Maharashtra and Kerala would be the logical step to access large quantities of capital and also to restart the manpower training of Indians – we badly need to train our workforce.

From India the play is on. Chabahar and the Turkmenistan railway is in play. Iran continues to try to get closer to USA but the Democrats rebuffed them. Again a straight talking republican alone can make these things happen, not a weaselly democrat.

The Shia Sunni cold war is on. The coming of ISIS was unpredictable but has changed the dynamics totally. With Baathists of Syria likely to win, and US tied to Saudi Aramco at the hip, there is no telling how this will play out.

Other global events:

1. Wars: I am downgrading Iran as flashpoint – but renewed Shia Sunni fight for dominance in Syria and efforts by Sunni Pakistan to export nuclear technology to Soudi Arabia continue to be dangerous. Hopefully the UAE’s economic performance will persuade Saudi to look for economic rather than religious dominance, but seems difficult for now. Saudi with 800 billion in output is still the richest and most dominant economy in West Asia. 2014 is a crucial year to see future direction of this great game – as Syria reaches boiling point

There was no export of nuclear technology yet. Likelihood increased though after the Saudi GDP expected contraction to about 700 billion i.e. 15% haircut in the output for the year

2. North Korea: Again downgrading, despite the crazy execution of the uncle. China is actively discouraging adventurism, but still, the young Un is crazy, so unpredictable

Remains as such

3. China Japan – an arms race with Japan/ Taiwan/USA on one side and China on the other for dominance is now inevitable. Since Japanese capital was routed through Taiwan into Chinese manufacturing, there is going to be a lot of rerouting – India can get a piece of the cake but for now, Vietnam (bizarrely) and Indonesia have been more pragmatic in attracting capital

Came true

4. Afghanistan. Very crucial time for this country – the US withdrawal and Karzai leaning towards India – and the usual Indian stupidity in foreign affairs means that a dangerous civil war is looming between Karzai, sections of the Pushtu supporting him and northern alliance on one side and Taliban Pushtu on the other side. Partition of Afghanistan into a Pro-pakistan zone and a Pro-Indian zone is possible – Indian foreign policy should be directed at a favourable partition into Iran borders/Herat/Northern Alliance which is on the side of India but covers the gas bearing and oil pipeline lands – so that a central Asia to Iran gas/oil pipeline can be made which is outside the Taliban Pushto Pakistan Axis. The Rump Pushto/Taliban areas of Afghanistan with majorty of the poor and illiterate Pushtos should be kept away from the pipeline by adequate ethnic cleansing with active American, Iranian and Indian military/diplomatic/special forces CIA action. Iranian ports can be used for the export of both Iranian gas/oil and Central Asian gas/oil. Ultimate long distance aim of India for future Pakistan should be balkanization into the Pushto areas of Rump Afghanistan and NWFP as first area, nuclear defanged Punjab as second area and a new Balochistan/Sind coastal region which should gain partition excluding the Pushto populations of Karachi and Quetta (who go back into the Pushtoonistan regions by ethnic cleansing). The coast of Balochistan/Sind should become port based and integrated into the Indo Gulf trade block. This would also bring the Balochi oil and gas into the trade block. Active resistance from Pakistan and Saudi (1 trillion of GDP together) would need to be broken with CIA help. For now, let us see whether the break in Afghanistan comes along favourable or unfavourable lines – Iran is likely to be more influential in Herat than the stupid Indian blunderings – and Iran is a much better player than India – so easiest prediction is a convulsion in Afghanistan in 2014 with a semi partition – and civil war.

There was no civil war. Thank God.

5. Pakistan: By middle of 2014, the main transpacific alliance would be at logger heads with the Pakistan China Axis – and Pakistan would have to choose sides. I have no clue which side they would choose – but Pakistanis are cleverer than Indians and would play their cards smartly. I hope they would abandon their 60 year alliance with China and choose their equally long 60 year alliance with USA – but I cannot predict. Let us see how the new Army Chief behaves. Nawaz Sharif is anyway total opportunist and will go with the Army.

In the event, the tribal of Khyber and Waziristan being bombed by the Pak Army. Looks like Pakistan hedged its bets for this year. China also pushing Pak on these loonatics - who export terror to Xingiang.

6. Syria: This has gained importance. Whether the Shia or Sunni win is a big deal – because Iraqi Al Qaida is also dependent on continued strife in neighbor Syria. The recent victory of the US-Iran deal will determine future events. If they get closer together, then USA will let the Shia Baathists win against the rebels – this is a favourable event because Iraqi Al Qaida, Wahabi terror and Syrian Sunni rebels are all together and a defeat with return of peace would be in India’s best interests. But very unpredictable. I would predict US victory on the side of the Baathists in 2014.

Came true.

Although ISIS was unpredicted, ultimately the US bombed the ISIS which was on the side of the Baathists only. Because of the bizarre madness of ISIS, it has ensured defeat for the Sunnis and victory for the Shia, much against the wishes of USA.

7. Egypt. The jasmine revolution has failed in Egypt. Unlike in India where AAP has found favour, in Egypt every event has been unfavourable. A slow withering of the Muslim brotherhood is the favourable event for India – but unfortunately the reverse seems to be happening. Egyptians are quite intelligent and a democratic and prosperous Egypt (which in the past was anti middle class like India and forced emigration of Egyptian expats like Indians) – and a resurgence of industry, services and manufacturing in Egypt would be in the best interests of India and the world. But my prediction for Egypt is turmoil in 2014.

Came true. Muslim brotherhood is out.

8. South America – the bursting of the commodity bubble has caused a return of inflation and poor economic performance – along with resurgence of leftists. The alliance with China is saving a lot of these countries from economic ruin – and is bad news for India and the Anti Chinese alliance. My prediction for 2014 is increased leftist activity, persistent inflation and turbulence in the region.

Came true

Specific predictions for the world events – for 2014

1. Transatlantic alliance: Low key for now. German decisions on Euro Zone unlikely in 2014. No progress expected

Came true

2. Transpacific alliance: Likely to be very active.

Was less active than I expected

3. Military activity in Pacific: China has one aircraft carrier and second is under construction. Japan has 1+1. USA has 10+3. China and Japan are are likely to commission one more each. USA is likely to reduce carrier groups in Gulf and shift to Chinese region. Japan and India are likely to commission many submarines – the next cold war is likely to be sea based, carrier based, submarine based, cruise missile based and drone based. Massive Japanese investment into drone technology is likely. There is already news chatter in this regard after the Senkaku islands.

Came true

4. Military activity in Korea: Increased threat perception in North Korea due to the drone technology of Japan can cause a war – 5% chance.

Did not come true

5. Military activity in Gulf: Unlikely. USA and Iran likely to stay quiet while the small time activities of Syria, Iraq and Afghanistan sort themselves out. US likely to see which way Pakistan goes – USA or china.

Came true

6. Syria – slow death of the rebels is likely

Coming true despite spectacular gains of ISIS. By edging out the moderates, ISIS has ensured its own demise

7. Iraq – slow death of the Al Qaida is likely

Wrong - ISIS took over most of the country. Goo play by the Shias - the ISIS is so extreme, it ensures its own slow death. MEanwhile they have made like hell for the Sunnis and the Kurds - which is to the advantage of the Shias.

8. Iran – likely to get closer to USA

Iran tried but the US trying to balance with Saudi

9. Afghanistan – increased Al Qaida activity as USA exits – likely to force a rethink in USA on exiting. Postponement of exit is likely in case Iran gets closer to USA – so I predict that US will not withdraw completely from Afghanistan and a new political grouping with increased Iranian influence will emerge in 2014.

Did not happen. US did withdraw more than expected. New govt did come but not pro Iranian.

10. Egypt – Al Qaida/muslim brotherhood activity likely to increase.

Wrong - brotherhood finished off

Country wise economic broad and specific predictions.

China: Good GDP growth. Military expenditure and employment will grow – being unproductive, it will crowd out investment lead growth, but cause good employment generation and local consumption. Reduced Japanese and US investments likely – despite that local investments are likely to propel economic growth based on productivity increases.

Came true

Specific: Shanghai Index 2500 by year. Currency stable. Bond rates stable. Investment in Chinese stock market recommended – Mirae China Advantage Fund

Came true. If you had invested in China, 40% return instead of my predicted 20%.

Nikkei – 18000 based on pick up of activity and near shoring of manufacturing in Japan.

Came true

Prefer China over Japan for investment

Came true

Australia –flat

Gulf – 10% growth in stocks and RE. Dubai real estate for HNI recommended over London.

Wrong. Economies in free fall, stocks and real estate down a lot

Brazil – flat. South American Funds skewed towards Mexico might perform better than Brazil focused funds.

Came true

India:

Politics: BJP win 100%.

Came true

Modi as PM 80%.

Came true

Non Modi PM (Advani/Chauhan 20%).

AAP 20 seats.

Wrong

Congress wipe out in almost all states including Karnataka.

Wrong

Lalu resurgent

Wrong

, Nitish wipeout,

Came true

Navin Patnaik steady,

Came true

Mulayam wipe out,

Came true

Maya poorer performance than expected,

Came true

Amma dominant,

Came true

Mamta steady.

Came true

Economics: 4.5 % growth

Came true with upward bias.

RBI rates: Flat for now and flat for later as well – current rates are a comfort zone.

Came true

Rupee: Flat for now, slow and steady depreciation to about 64-65 after the taper reached 40 billion repurchases. Expected nadir in May

Came true

Stock: 25000 by April 2014. One can book profit since both nadir of taper and elections are coinciding – sit on liquid funds for April-May – wait for fall and re-enter regardless of who wins in elections. If Modi wins big, 30000 by year end, If confusion, then still stocks likely to end 2014 at 25000 at least

Came true

Sectors: Secular upside in cyclical as well as defensives including FMCG – basically broad based. Go with diversified mutual funds.

Came true

Bond rates: Steady at 8.75% long term rates throughout 2014.

Bond rates came down without much RBI activity

Gold: Steady/mild uptrend to 30-31000 based on Rupee depreciation (dollar appreciation against gold will cancel out most of the gains)

Gold much lower than expected

Real Estate: Flat to downtrend of 10-15%.

Came true

RTM and ready made flats will have stagnant prices.

They also fell

Completion premium downgraded to 10% upside for UC (instead of usual 30% premium).

Came true

Without completion, 10% fall in prices for delayed flats by 2014

Came true

Best performace in real estate: Chennai and Bangalore

Came true

Worst performance in real estate: Yamuna Expressway, Dwarka Expressway, Mumbai main, Tier 2 and Tier 3 towns

Came true

Stagnant prices: Delhi, Mumbai Suburbs, Pune, NOIDA, Gurgaon.

They also fell a lot except Pune and Mumbai Suburbs

Agriculture: Flat prices for grains based on govt purchase. Vegetables stable with increased supply. Mild palmolein price inflation due to Rupee weakness – feeding FMCG price rise and slightly lower realizations

Came true

Chances of War: Pakistan and China mostly on wait and watch mode. China will increase pressure on borders if Iran and Pakistan both shift to USA – especially if NaMo is PM, since the frenzy from media will weaken India. NaMo will be forced to respond. Mature response from Namo is needed for market stability – but I expect him to rise to the occasion.

Came true

Summary of Predictions by end 2014

Dow 17000 Came true

US Bond rate 3.5% Wrong

Gold in dollars 1150-1250 with 1150 in May 2014 Came true

US REIT – 5 % returns Came true

US Real Estate – Stagnant. Came true

Brent - 110 MAJOR WRONG

Nymex - 100 MAJOR WRONG

FTSE – 10000 MAJOR WRONG

London Real Estate – Stagnant to mild 2-5% fall Came true

Dubai Real Estate – Up 10% MAJOR WRONG

Cac - 4500 Came true

Dax - 10000 Came true

Shanghai Composite - 2500 Came true but went much further up

Nikkei - 20000 Came true but did not rise as much as expected

Latin America – Down 10% Came true

Sense-x: 30,000 Came true

Gold in Rupees: 31000 Was much lower

Indian Bond Rate: 8.75% MAJOR WRONG

Indian RE: No returns Came true




ASSET RECOMMENDATIONS

Decadal

Asset of the decade: Stocks (the decade starting 2014-2024)

Asset to avoid for the decade: Gold

Yearly

Asset of the year 2014: Stocks. FD/FMP/bonds equally good. Correct recommendation

Asset to avoid for 2014: Gold and Real estate Correct recommendation

Fresh allocations for 2014: 60% stocks, 30% FMP/tax free bonds, 10% dollar denominatedCorrect recommendation

Balancing of existing allocations for 2014:

Stocks increase to 45% Correct recommendation

Bonds/Debt increase to 30% Correct recommendation

Real estate decrease/no further additions until it reduces to 20% Correct recommendation

Gold 0% Correct recommendation

Dollar denominated (non gold) 5% Correct recommendation


All in all, I think most of the final recommendations were correct

This happened despite majorly missing the oil fall and the slow fall in both US 10 year and Indian 10 year rates to very low levels. DEspite that, a majority of the events were predictable including the elections and the Syrian problems.

Let me now think about the new year predictions