n stagflation, it is the contrary.
Land which is unusable loses value - nobody has money to waste on empty land. So plot prices plummet - nobody has money to spend on construction - construction costs also inflate. Empty plot is useless - its prices rises in good times only. Remember plot prices in 1996, 2001 and 2008? Some 50% drop from peak. Similarly, a flat in remote places like Daruhera, greater noida etc will lose value. People wont live there because petrol for commute is expensive.
Actual rentable property - in places close to jobs or good shop locations - they maintain value.
Rentals actually go up a lot. Remember the 70s and 80s - rent for flat used to be one half of salary in places like Bombay.
When the "inflation" part of stagflation makes everything expensive, the base rent (smallest livable flat i.e. small 2BHK flats in Delhi's unauthorised colonies) - they go up a lot.
It has already done so recently. Rent for the base flat in Gautam Nagar of South Delhi is now 12,000 Rs per month. In 2008 it was 5-6000Rs. That is a 100% increase. So a guy earning 25000 per month is now forking out 50% of salary as rent. Or living remote and biking to work 25Km each way = 70Rs a day = 2000 per month.
Thats the floor - rent for the cheapest flat. And the kind of people who own these types of flats dont compromise on rental value - mostly rough badmash types who bought the property through all kinds of means - the types who squeeze the maximum out of their property.
In recession, one buys in main metros without new supply - because in recession people dont have money and so prices dont go up so much. Only there, in the middle of metros, will the rentals increase with stagflation. Rentals in far flung places will fall.
In boom times one buys away from main cities in up and coming areas - because prices in main cities go up too much and in boom time, there is more development.
Buying in far flung areas during recession is a big mistake. I have learned this the hard way - when in 2009 I went for DEay location instead of GCX.
In boom time one plays the booking game. In recession/stagflation one buys prime property
A bubble can burst in 2 ways - either the prices come down - or the currency loses value to reflect the new price as normal.
Traditionally, in USA and Britain before that - i.e. developed country with steady currency, prices come down.
In India, traditionally, inflation and depreciation of currency are what normalise the prices. So in the early 80s, in 1990-91, in 2008 and right now - it is the currency which gave way - not the RE prices.
There are other ways for bubbles to burst. Those without RE in portfolio will surely regret. 2003 to 2008 in India was an extraordinary time wiht low rates. Never seen before.
It may never be seen again. India is now back to normal - a bumbling mess.
Did you know that the lions share of "services" in India is contributed by "Govt?". And that "productivity" in Govt is measured as expenditure?
So money spent on NREGA, fertilizer subsidy, defence expenditure and salaries to govt servants is straight jacked in as "GDP"
Dont recall exactly, but last I remember some 30% of India's GDP is calculated on the basis of this servises i.e. money spent plus "salary paid to Govt servants" - both central and state combined.
Whether there is any level of productivity there is not counted at all.
Now you know why the component of services is rising in our economy - because of govt pay commissions!!!!! and spending sprees.
If you build a road for 1billion dollars, and it is washed out in rain and next year you again spend 1.05 billion, then it is counted twice - this year and next year - and since next year you spent more i.e 1.05billion - voila - there is your 5% GDP growth !!!!!!
The soviets went bankrupt with this kind of "productivity" and ran their country into the ground.
Well, its not that bad - Govt expenditure is mentally "discounted" by people.
And mind you, Industry and software was also growing - something has to grow for the govt to tax and spend after all.
Basically the taxation and inefficient expenditure became too much. Govt spending has three levels of inefficiency attached to it.
1. Usually, govt spends money where it shouldnt - like NREGA or fertilizer subsidy or minimum support price grain purchase
2. Second, there is an element of leakage and corruption where politicians and babus loot much of the money
3. This generates black money which notoriously has much slower velocity than white money.
Many people actually praise black money as "preventing RE crash". But what they fail to realise is that black money has a habit of stopping money velocity in its tracks.
In a white transaction, if you spend 100Rs, the person you give it to again spends it to and so on - the same 100Rs will exchange hands many times - each time someone gets a 100Rs as income. Each time he again spends it, he generates employment and someone else earns that 100Rs. There is a huge beneficial effect. This is the effect of money velocity.
Each time that 100Rs gets spent, 10Rs gets taxed by govt - so it is possible to get 200Rs in tax if the same 100Rs passes hands 20 times
Now black money is not spent similarly. Most black money ends up as an empty plot, empty flat, gold in a locker, cash under someone's bed or sent abroad in hawala so that the velocity benefits other countries.
OR - black money gets spent in totally useless ways - like boozing, or other bad habits. Adds little to useful product and generates more problems than the utility of the velocity generated.
The only time black money gets converted into white money is at election time - when jeep walas, printers and other people are paid for their services and the money gets back into circulation.
Everytime real estate and gold gets into a bubble, it is an indicator of the underlying malaise of black money. It means economy will come to a grinding halt.
Until we get rid of the problems in our govt, get rid of corruption, get rid of black money and hawala - they will always overwhelm the good parts of our economy - manufacturing and IT.
And Sanjana, in 2006-7 I always remember my visits to Bombay - just looking out of the window of the car with Sense-x at 20,000 and thinking - look at these people - how is India shining? They look like beggars! And my relatives would talk about how much money they were making in the stock market - so was I - and the picture outside the window was completely different.
Any other country which is shining - look out of the window an you see a modern city. Hong Kong, Shanghai, even Bangkok. Or even Kuwait or Dubai.
We look out and we see only dirt and poor people.
No wonder slumdog millionaire got made. India was never shining. Some people in middle class got paid somewhat similar to the same kind of job elsewhere because of globalization.
The majority were unemployable. And the hype misled us. I sold out my stocks in November 2007, thinking this is too much. I was right.
Unfortunately I didnt get back in when we hit 8000 sense=x in 2009. Still lamenting the missed opportunity
Monday, June 11, 2012
Friday, January 13, 2012
On the RE cycle
Some outstanding posts in this thread in the last 10-15 pages over the last month or so. Excellent read on a slow afternoon.
My take: 2012 wil be a slow year for GGN with static prices and poor resales in flats. Until the resales are absorbed by end user, one cannot expect any more price increases.
Investors should stay away. End user will have a lot of choice and negotiation leeway - this will be the year of absorption
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
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
My take: 2012 wil be a slow year for GGN with static prices and poor resales in flats. Until the resales are absorbed by end user, one cannot expect any more price increases.
Investors should stay away. End user will have a lot of choice and negotiation leeway - this will be the year of absorption
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
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
Wednesday, January 11, 2012
http://www.indianrealestateforum.com/noida/t-up-elections-what-likely-happen-23996.html
3/1/12
Summarising opinions and some thoughts
Lots of great insight from all of you here. SOme of the points which I had not considered:
1. Companies have already set aside money for bribing new govt: probably true. But companies which are too closely associated with BMW regime might have problems just to prove the point that politicians are the bosses - so they might trouble JP just to send a message - JP will be screwed if BMW loses - or the payment will be much more than for other players. But please note - JP is a old and Sen-s-ex listed company unlike Sahara which is a front for ganster money. Also, JP survived under congress 30 years ago - will survive with heavy bleeding. Paras, NRI, Wave etc are just BMW front companies and will probably take the investors money and vanish - truly avoidable.
2. Many people feel that BJP and BSP might have coalition. But will BJP have any significant numbers? Their non-yadav OBC vote bank is being actively poached by congress and BSP - we have to see what happens. Brahmins, Bania and Thakurs may or may not vote for them - they might just vote for the caste and in their areas, all parties will have same caste contender - they might vote for the person and not party. YOu need over 50 seats to be able to support a govt - otherwise people will just defect. BJP is in make or break situation.
3. Gorakhpur situation was well pointed out - same with Jhansi - Bundelkhand and Purvanchal regions might respond to the state split proposal of BSP - they might be a big surprise win for BSP. Again, we need to see.
4. Yadav plus muslim is alone enough to defeat BSP - as in past. Tactical co-operation between congress and SP can really get them a land slide - probably it wont come about (politicians are so stupid) - adding congress MBC and non yadav OBC and some of the brahmin/bania/thakur votes to SP would get them land slide. Without poaching each others votes
5. Congress and BSP cannot have pre-poll alliance - they try for the same votes and can only compete and go for post poll alliance.
6. Anna is irrelevant. He should not waste his time in UP - he should be in Punjab and Uttaranchal where his anti congress message can help BJP re-election
7. Early lok sabha polls - no chance. Congress is not stupid like BJP - only BJP was stupid enough to dissolve early and lose power a year before they had to. COngress will never make the mistake. If congress had faced the 1999 confidence poll where Saifuddin Soz brought down govt with one vote - their speaker would have cast 2 votes and made the govt survive. BJP was stupid enough to have a speaker who did not vote at all - morons.
8. A lot also depends on turnout - lower the turn out, better for BSP (whose people will turn out). Yadav and muslim will also turn out - but a lot of MBC, non yadav OBC and brahmin/bania/thakur might not turn out at all. Bad for congress and BJP. With 40% turn out, BSP win is certain, with 60% turn out SP/Congress win is certain, at 50% turn out, its anybodies guess. Especially western UP and Awadh turn outs.
9. Positioning for real estate: avoid fresh exposure till elections are over. But expect a big boost in flat prices of around 30% after elections - so hold positions. If BSP wins, expect a boost in JP projects. Other BSP front projects can heave a sigh of relief. If SP wins, front companies will delay project for 5 years. This will reduce supply. All others will have to raise prices for the fresh bribes - so expect prices to jump by 30% across the board. Added to all the other congress related measures, strong prices in NOIDA for the remainder of the congress term till 2014 is inevitable. Expressway projects are the best bet right now.
10. For stocks, JP stocks are the best bet - they are already hammered with limited downside. If BSP wins, expect a 100% return within 3 months. Especially JP infra. In general, regardless of results, if COngress is involved in UP govt, expect a big stock and real estate boost. Expect a lot of fireworks in budget also - all in all, from now to March, best time to enter stocks.
All in all, it seems like a close race for BSP and SP - overall, I am hearing that law and order was little better under BMW and statehood might strike a cord in some parts of UP - if they work, BSP might win (30% chance). Otherwise SP (70% chance)
__________________
Looks like the elections are wide open - going by all your spinions - and Zohaib's opinion elsewhere. Maybe BSP might perform better than expected.
BJP getting 18% of the vote seems unlikely this time - I expect a disproportionate drop in BJP seats because of this - maybe to even less than 20!
Which makes it a three horse race with Congress as the kingmaker.
Regardless of result, NOIDA RE prices should go up - on feel good factor if BSP wins, on supply reduction and land scarcity issue if SP wins.
In fact, prices may goup more if SP wins than if BSP wins
5/1/12
For BJP this is a crucial election because it is in danger of losing Punjab and Uttarakhand.
Gadkari's stupidity knows no bounds. First he puts Uma Bharti in charge - she has done nothing in this campaign - may not even get the Lodh votes. MBC and OBC other than Yadav are still open for grabs by Congress and BSP.
Then he actually inducts Kushwaha and company into BJP - talk about a death wish - what vote can they deliver? Thakur vote? More likely to lose Thakur votes by displaying themselves as morons to whom corruption of the worst order is acceptable and the extent of their stupidity - Thakurs are mostly well educated and well aware of "smartness" in a party. They are not going to like a person like Gadkari
Gadkari should be kicked out of BJP. He is killing the party. Wishtowns Zohaib is absolutely right - law and order of "no dacoity/robbery/beating/gun or katta running/drug smuggling type is what is needed.
SP of course is a criminal party and every leader in it is a drug/booze smuggler or gun runner. And yet self goals from BSP and BJP are pushing this criminal party into power by default (and cynical low mindedness from Congress who is willing to consort with these criminals).
Did BSP do anything for Brahmins, Banias and Thakurs at all? Why would anyone except Dalits vote for her? Unfortunately for BSP, the upper caste boat has now sailed and it is too late to do anything.
If she is smart, she should really swing for the MBC votes - say how the minority reservation is going to eat into the MBC share - how congress is destroying the MBC - that is a winning strategy for her, assuming Muslims will not vote for her.
She cannot angle for both Muslim and MBC votes - she has to chose one or the other.
11/1/12
Situation in UP seems to be quite fluid and changing every day.
BJP might be doing micromanagement but that in itself is not enough. They also need to make a lot of noise – perhaps from Uma Bharti – so that tey are not seen as total losers and non-entities – otherwise they will be marginalized.
BSP might be making a late recovery and might improve from previous expected second position. I agree that covering the statues is going to benefit the BSP – correct procedure would have been to get a court judgement against BSP for self agrandisement and using state funds for self and party symbol promotion. Congress did not do that – instead they put in pliable election commissionaires who can be influenced – typical Congress behaviour.
Congress might be getting too clever for its own good. Most of its strategies are capable of backfiring – Maha Dalit reservation might not get it any votes but might improve vote consolidation for BSP. MBC might not benefit them either – it can backfire and end up benefiting BJP and SP by consolidating their respective vote banks within the OBC. And minority reservation might also consolidate anti-minority votes towards BJP – and at the same time, by targeting SP, which is the biggest challenge to BSP, the vote splitting might end up benefiting BSP/
So which of these eventualities prevail is unpredictable and the election is wide open still.
Re: Modi, his campaign in UP might be useful in consolidation of anti-minority votes.
Bania/Thakur/Brahmins/MBC/Dalits are the biggest victims of criminality indulged in by SP their minority criminal elements and BJP and BSP might be a surprise beneficiary of minority pandering by Congress.
TO me it seems that Congress is making self goals and converting a strong position into a disaster.
3/1/12
Summarising opinions and some thoughts
Lots of great insight from all of you here. SOme of the points which I had not considered:
1. Companies have already set aside money for bribing new govt: probably true. But companies which are too closely associated with BMW regime might have problems just to prove the point that politicians are the bosses - so they might trouble JP just to send a message - JP will be screwed if BMW loses - or the payment will be much more than for other players. But please note - JP is a old and Sen-s-ex listed company unlike Sahara which is a front for ganster money. Also, JP survived under congress 30 years ago - will survive with heavy bleeding. Paras, NRI, Wave etc are just BMW front companies and will probably take the investors money and vanish - truly avoidable.
2. Many people feel that BJP and BSP might have coalition. But will BJP have any significant numbers? Their non-yadav OBC vote bank is being actively poached by congress and BSP - we have to see what happens. Brahmins, Bania and Thakurs may or may not vote for them - they might just vote for the caste and in their areas, all parties will have same caste contender - they might vote for the person and not party. YOu need over 50 seats to be able to support a govt - otherwise people will just defect. BJP is in make or break situation.
3. Gorakhpur situation was well pointed out - same with Jhansi - Bundelkhand and Purvanchal regions might respond to the state split proposal of BSP - they might be a big surprise win for BSP. Again, we need to see.
4. Yadav plus muslim is alone enough to defeat BSP - as in past. Tactical co-operation between congress and SP can really get them a land slide - probably it wont come about (politicians are so stupid) - adding congress MBC and non yadav OBC and some of the brahmin/bania/thakur votes to SP would get them land slide. Without poaching each others votes
5. Congress and BSP cannot have pre-poll alliance - they try for the same votes and can only compete and go for post poll alliance.
6. Anna is irrelevant. He should not waste his time in UP - he should be in Punjab and Uttaranchal where his anti congress message can help BJP re-election
7. Early lok sabha polls - no chance. Congress is not stupid like BJP - only BJP was stupid enough to dissolve early and lose power a year before they had to. COngress will never make the mistake. If congress had faced the 1999 confidence poll where Saifuddin Soz brought down govt with one vote - their speaker would have cast 2 votes and made the govt survive. BJP was stupid enough to have a speaker who did not vote at all - morons.
8. A lot also depends on turnout - lower the turn out, better for BSP (whose people will turn out). Yadav and muslim will also turn out - but a lot of MBC, non yadav OBC and brahmin/bania/thakur might not turn out at all. Bad for congress and BJP. With 40% turn out, BSP win is certain, with 60% turn out SP/Congress win is certain, at 50% turn out, its anybodies guess. Especially western UP and Awadh turn outs.
9. Positioning for real estate: avoid fresh exposure till elections are over. But expect a big boost in flat prices of around 30% after elections - so hold positions. If BSP wins, expect a boost in JP projects. Other BSP front projects can heave a sigh of relief. If SP wins, front companies will delay project for 5 years. This will reduce supply. All others will have to raise prices for the fresh bribes - so expect prices to jump by 30% across the board. Added to all the other congress related measures, strong prices in NOIDA for the remainder of the congress term till 2014 is inevitable. Expressway projects are the best bet right now.
10. For stocks, JP stocks are the best bet - they are already hammered with limited downside. If BSP wins, expect a 100% return within 3 months. Especially JP infra. In general, regardless of results, if COngress is involved in UP govt, expect a big stock and real estate boost. Expect a lot of fireworks in budget also - all in all, from now to March, best time to enter stocks.
All in all, it seems like a close race for BSP and SP - overall, I am hearing that law and order was little better under BMW and statehood might strike a cord in some parts of UP - if they work, BSP might win (30% chance). Otherwise SP (70% chance)
__________________
Looks like the elections are wide open - going by all your spinions - and Zohaib's opinion elsewhere. Maybe BSP might perform better than expected.
BJP getting 18% of the vote seems unlikely this time - I expect a disproportionate drop in BJP seats because of this - maybe to even less than 20!
Which makes it a three horse race with Congress as the kingmaker.
Regardless of result, NOIDA RE prices should go up - on feel good factor if BSP wins, on supply reduction and land scarcity issue if SP wins.
In fact, prices may goup more if SP wins than if BSP wins
5/1/12
For BJP this is a crucial election because it is in danger of losing Punjab and Uttarakhand.
Gadkari's stupidity knows no bounds. First he puts Uma Bharti in charge - she has done nothing in this campaign - may not even get the Lodh votes. MBC and OBC other than Yadav are still open for grabs by Congress and BSP.
Then he actually inducts Kushwaha and company into BJP - talk about a death wish - what vote can they deliver? Thakur vote? More likely to lose Thakur votes by displaying themselves as morons to whom corruption of the worst order is acceptable and the extent of their stupidity - Thakurs are mostly well educated and well aware of "smartness" in a party. They are not going to like a person like Gadkari
Gadkari should be kicked out of BJP. He is killing the party. Wishtowns Zohaib is absolutely right - law and order of "no dacoity/robbery/beating/gun or katta running/drug smuggling type is what is needed.
SP of course is a criminal party and every leader in it is a drug/booze smuggler or gun runner. And yet self goals from BSP and BJP are pushing this criminal party into power by default (and cynical low mindedness from Congress who is willing to consort with these criminals).
Did BSP do anything for Brahmins, Banias and Thakurs at all? Why would anyone except Dalits vote for her? Unfortunately for BSP, the upper caste boat has now sailed and it is too late to do anything.
If she is smart, she should really swing for the MBC votes - say how the minority reservation is going to eat into the MBC share - how congress is destroying the MBC - that is a winning strategy for her, assuming Muslims will not vote for her.
She cannot angle for both Muslim and MBC votes - she has to chose one or the other.
11/1/12
Situation in UP seems to be quite fluid and changing every day.
BJP might be doing micromanagement but that in itself is not enough. They also need to make a lot of noise – perhaps from Uma Bharti – so that tey are not seen as total losers and non-entities – otherwise they will be marginalized.
BSP might be making a late recovery and might improve from previous expected second position. I agree that covering the statues is going to benefit the BSP – correct procedure would have been to get a court judgement against BSP for self agrandisement and using state funds for self and party symbol promotion. Congress did not do that – instead they put in pliable election commissionaires who can be influenced – typical Congress behaviour.
Congress might be getting too clever for its own good. Most of its strategies are capable of backfiring – Maha Dalit reservation might not get it any votes but might improve vote consolidation for BSP. MBC might not benefit them either – it can backfire and end up benefiting BJP and SP by consolidating their respective vote banks within the OBC. And minority reservation might also consolidate anti-minority votes towards BJP – and at the same time, by targeting SP, which is the biggest challenge to BSP, the vote splitting might end up benefiting BSP/
So which of these eventualities prevail is unpredictable and the election is wide open still.
Re: Modi, his campaign in UP might be useful in consolidation of anti-minority votes.
Bania/Thakur/Brahmins/MBC/Dalits are the biggest victims of criminality indulged in by SP their minority criminal elements and BJP and BSP might be a surprise beneficiary of minority pandering by Congress.
TO me it seems that Congress is making self goals and converting a strong position into a disaster.
Wednesday, January 4, 2012
Thoughts on UP state elections
Samajwadi and Congress might form govt in UP. Based on poor performance of BMW so far - firing ministers has only confirmed that they were corrupt. Extreme stupidity. Minority reservation should pay rich dividends for Congress. Ajit Sigh might perform very well in Western UP, Congress and SP might have informal seat sharing and increase muslim vote share. BMW will lose muslim and brahmin votes - congress will get brahmin votes. SP plus Ajit plus Congress is a winning combination. BJP will be wiped out in UP (also in Uttarakhand and Punjab). Mayawati seems to have blundered and her game plan has boomeranged. UP everything is caste. Muslim - Yadav - Brahmin - Jat combination for SP+Congress+RLD will definitely win the election. This is already seen on the ground gossip. With splitting of remainder of votes - BJP getting Thakur/Bania and BSP getting Dalit votes and the rest evenly divided, there is little chance of BSP returning.
Her firing of ministers has only confirmed her corruption - it shows her in bad rather than good light. Her statehood division is seen as a ploy which fell flat after initially trumping the congress. Rahul efforts are largely seen to be bearing fruit.
Basically, the new combination is becoming the wisdom on the ground and is commonly acknowledged. This prediction is nothing new - many have already done so and is commomplace now.
Farmers of Bulandshahar and NOIDA are essentially not happy and will go with Congress/RLD combine. This was supposed to be the big benefit for BMW which has failed to materialise.
A lost election spells big trouble for BMW. CBI disproportionate asset case will be active again. New cases will be filed. Many big developers like JP, 3C, Wave, NRI etc will be troubled with new bribes needed = big losses.
Rapproachment between Mukesh (congress) and Anil (SP) Ambani is also acknowledgement of shifting in power equations in politics. Mukesh was being hounded for bribes by Congress and if SP winds, the two brothers will emerge again as kingmakers (after Mukesh was in minor difficulties)
It may cause project abandonment in NOIDA and GNOIDA area in 2012. Until election results, one should stay away from NOIDA RE. One should also avoid JP and JP infra stocks
What does the UP/NOIDA Janta here feel on this?
(Later)Lots of great insight from all of you here. SOme of the points which I had not considered:
1. Companies have already set aside money for bribing new govt: probably true. But companies which are too closely associated with BMW regime might have problems just to prove the point that politicians are the bosses - so they might trouble JP just to send a message - JP will be screwed if BMW loses - or the payment will be much more than for other players. But please note - JP is a old and Sen-s-ex listed company unlike Sahara which is a front for ganster money. Also, JP survived under congress 30 years ago - will survive with heavy bleeding. Paras, NRI, Wave etc are just BMW front companies and will probably take the investors money and vanish - truly avoidable.
2. Many people feel that BJP and BSP might have coalition. But will BJP have any significant numbers? Their non-yadav OBC vote bank is being actively poached by congress and BSP - we have to see what happens. Brahmins, Bania and Thakurs may or may not vote for them - they might just vote for the caste and in their areas, all parties will have same caste contender - they might vote for the person and not party. YOu need over 50 seats to be able to support a govt - otherwise people will just defect. BJP is in make or break situation.
3. Gorakhpur situation was well pointed out - same with Jhansi - Bundelkhand and Purvanchal regions might respond to the state split proposal of BSP - they might be a big surprise win for BSP. Again, we need to see.
4. Yadav plus muslim is alone enough to defeat BSP - as in past. Tactical co-operation between congress and SP can really get them a land slide - probably it wont come about (politicians are so stupid) - adding congress MBC and non yadav OBC and some of the brahmin/bania/thakur votes to SP would get them land slide. Without poaching each others votes
5. Congress and BSP cannot have pre-poll alliance - they try for the same votes and can only compete and go for post poll alliance.
6. Anna is irrelevant. He should not waste his time in UP - he should be in Punjab and Uttaranchal where his anti congress message can help BJP re-election
7. Early lok sabha polls - no chance. Congress is not stupid like BJP - only BJP was stupid enough to dissolve early and lose power a year before they had to. COngress will never make the mistake. If congress had faced the 1999 confidence poll where Saifuddin Soz brought down govt with one vote - their speaker would have cast 2 votes and made the govt survive. BJP was stupid enough to have a speaker who did not vote at all - morons.
8. A lot also depends on turnout - lower the turn out, better for BSP (whose people will turn out). Yadav and muslim will also turn out - but a lot of MBC, non yadav OBC and brahmin/bania/thakur might not turn out at all. Bad for congress and BJP. With 40% turn out, BSP win is certain, with 60% turn out SP/Congress win is certain, at 50% turn out, its anybodies guess. Especially western UP and Awadh turn outs.
9. Positioning for real estate: avoid fresh exposure till elections are over. But expect a big boost in flat prices of around 30% after elections - so hold positions. If BSP wins, expect a boost in JP projects. Other BSP front projects can heave a sigh of relief. If SP wins, front companies will delay project for 5 years. This will reduce supply. All others will have to raise prices for the fresh bribes - so expect prices to jump by 30% across the board. Added to all the other congress related measures, strong prices in NOIDA for the remainder of the congress term till 2014 is inevitable. Expressway projects are the best bet right now.
10. For stocks, JP stocks are the best bet - they are already hammered with limited downside. If BSP wins, expect a 100% return within 3 months. Especially JP infra. In general, regardless of results, if COngress is involved in UP govt, expect a big stock and real estate boost. Expect a lot of fireworks in budget also - all in all, from now to March, best time to enter stocks.
All in all, it seems like a close race for BSP and SP - overall, I am hearing that law and order was little better under BMW and statehood might strike a cord in some parts of UP - if they work, BSP might win (30% chance). Otherwise SP (70% chance)
Her firing of ministers has only confirmed her corruption - it shows her in bad rather than good light. Her statehood division is seen as a ploy which fell flat after initially trumping the congress. Rahul efforts are largely seen to be bearing fruit.
Basically, the new combination is becoming the wisdom on the ground and is commonly acknowledged. This prediction is nothing new - many have already done so and is commomplace now.
Farmers of Bulandshahar and NOIDA are essentially not happy and will go with Congress/RLD combine. This was supposed to be the big benefit for BMW which has failed to materialise.
A lost election spells big trouble for BMW. CBI disproportionate asset case will be active again. New cases will be filed. Many big developers like JP, 3C, Wave, NRI etc will be troubled with new bribes needed = big losses.
Rapproachment between Mukesh (congress) and Anil (SP) Ambani is also acknowledgement of shifting in power equations in politics. Mukesh was being hounded for bribes by Congress and if SP winds, the two brothers will emerge again as kingmakers (after Mukesh was in minor difficulties)
It may cause project abandonment in NOIDA and GNOIDA area in 2012. Until election results, one should stay away from NOIDA RE. One should also avoid JP and JP infra stocks
What does the UP/NOIDA Janta here feel on this?
(Later)Lots of great insight from all of you here. SOme of the points which I had not considered:
1. Companies have already set aside money for bribing new govt: probably true. But companies which are too closely associated with BMW regime might have problems just to prove the point that politicians are the bosses - so they might trouble JP just to send a message - JP will be screwed if BMW loses - or the payment will be much more than for other players. But please note - JP is a old and Sen-s-ex listed company unlike Sahara which is a front for ganster money. Also, JP survived under congress 30 years ago - will survive with heavy bleeding. Paras, NRI, Wave etc are just BMW front companies and will probably take the investors money and vanish - truly avoidable.
2. Many people feel that BJP and BSP might have coalition. But will BJP have any significant numbers? Their non-yadav OBC vote bank is being actively poached by congress and BSP - we have to see what happens. Brahmins, Bania and Thakurs may or may not vote for them - they might just vote for the caste and in their areas, all parties will have same caste contender - they might vote for the person and not party. YOu need over 50 seats to be able to support a govt - otherwise people will just defect. BJP is in make or break situation.
3. Gorakhpur situation was well pointed out - same with Jhansi - Bundelkhand and Purvanchal regions might respond to the state split proposal of BSP - they might be a big surprise win for BSP. Again, we need to see.
4. Yadav plus muslim is alone enough to defeat BSP - as in past. Tactical co-operation between congress and SP can really get them a land slide - probably it wont come about (politicians are so stupid) - adding congress MBC and non yadav OBC and some of the brahmin/bania/thakur votes to SP would get them land slide. Without poaching each others votes
5. Congress and BSP cannot have pre-poll alliance - they try for the same votes and can only compete and go for post poll alliance.
6. Anna is irrelevant. He should not waste his time in UP - he should be in Punjab and Uttaranchal where his anti congress message can help BJP re-election
7. Early lok sabha polls - no chance. Congress is not stupid like BJP - only BJP was stupid enough to dissolve early and lose power a year before they had to. COngress will never make the mistake. If congress had faced the 1999 confidence poll where Saifuddin Soz brought down govt with one vote - their speaker would have cast 2 votes and made the govt survive. BJP was stupid enough to have a speaker who did not vote at all - morons.
8. A lot also depends on turnout - lower the turn out, better for BSP (whose people will turn out). Yadav and muslim will also turn out - but a lot of MBC, non yadav OBC and brahmin/bania/thakur might not turn out at all. Bad for congress and BJP. With 40% turn out, BSP win is certain, with 60% turn out SP/Congress win is certain, at 50% turn out, its anybodies guess. Especially western UP and Awadh turn outs.
9. Positioning for real estate: avoid fresh exposure till elections are over. But expect a big boost in flat prices of around 30% after elections - so hold positions. If BSP wins, expect a boost in JP projects. Other BSP front projects can heave a sigh of relief. If SP wins, front companies will delay project for 5 years. This will reduce supply. All others will have to raise prices for the fresh bribes - so expect prices to jump by 30% across the board. Added to all the other congress related measures, strong prices in NOIDA for the remainder of the congress term till 2014 is inevitable. Expressway projects are the best bet right now.
10. For stocks, JP stocks are the best bet - they are already hammered with limited downside. If BSP wins, expect a 100% return within 3 months. Especially JP infra. In general, regardless of results, if COngress is involved in UP govt, expect a big stock and real estate boost. Expect a lot of fireworks in budget also - all in all, from now to March, best time to enter stocks.
All in all, it seems like a close race for BSP and SP - overall, I am hearing that law and order was little better under BMW and statehood might strike a cord in some parts of UP - if they work, BSP might win (30% chance). Otherwise SP (70% chance)
Monday, January 2, 2012
Happy New Year 2012 and refinements of long term predictions
Politics and Military: The main changes seen this year have been with regard to the Jasmine revolution. Most of these have taken place in Arab countries with low per capita GDP (Egypt 2000$, Libya 3000$, Tunisia 1000$, Syria 10000$, Yemen similarly low).
In all of these countries, military dictators with erstwhile super power support have fallen – Libya and Syria remainders of Soviet empire, Egypt American empire. The main reason for superpower involvement has been oil economy of middle east. Egypt, Syria and Tunisia don’t have much oil, Yemen and Libya have antiquated oil infrastructure requiring capital infusion, making cost of extraction much above 25$ per barrel.
While much has been made of non-militant Islamic nature of the revolution, it is likely that most if not all of these countries might degenerate into sectarian conflicts. Violence even in non-oil producing countries is likely to have a spill over effect into Soudi and Kuwaiti administration.
This revolution is therefore deleterious and will damage the stability of the entire region. This is a big negative for India and for oil prices going forward.
Broad long term directions emerging out of this middle east churning are likely to be:
1. Increase in cost of oil production. This is likely to emanate from the increased social sector spending required from Saudi and Kuwaiti rulers to placate their population. So real cost of production will include the increased welfare expenditure. This is a big cost compared to the rock bottom prices of extraction currently.
2. Increasing distancing of US from the crisis. US has greatly improved the oil infrastructure of Iraq but US has benefited little. US is now shifting to Mexican and Brazilian Crude, Lousiana Crude, Gasification of coal, Shale gas and fracting extraction methods, and Canadian tar sands as their main energy source.
3. Increasing competition for middle eastern crude between Europe and China, with USA standing aloof is now likely. US will not invest in a region where it is not getting returns in terms of oil
4. Increasing premium for Brent Crude, currently 10$ above WTI on Nymex. In times of stress this is likely to increase to a high of 20-25$ above WTI in times of geopolitical tension
5. Chinese growth even during these recessionary times is likely to push the remaining excess capacity in Soudia (currently producing at 85-90% of total capacity) to full capacity utilization within 3-4 years.
6. India will be a passive spectator, deeply affected by this premium for our own crude, benchmarked to Brent.
7. By 2016, Chinese growth is likely to be stifled by increasing energy prices. US will stand unaffected because of their national resources. Chinese growth is likely to moderate and be around 7-8% per annum because of these two stifles i.e. 1. Oil price increases in Brent and 2. Decreased capacity for Europe and USA to consume Chinese manufacture, lack of markets.
Chinese responses to this situation will be two fold.
1. Increased conflicts in South Chinese oil exploration
2. Increased links with Iran.
US is unlikely to expend capital on a situation which does not benefit directly. Decreasing production of North Sea oil is likely to push UK and Norway to increased dependence on Brent. France, Germany and Italy also heavily dependent on Brent and are likely to see no growth. Increased military co-operation between European nations is likely from 2014 onwards, probably under British leadership – so UK is likely to stay out of the Euro but is likely to lead military adventurism in Iran, Iraq, Baluchistan, Algeria and Libya. Of the Euro zone, it has the strongest military and blue water navy. They are likely to acquire a Aircraft carrier (currently lacking) and increase fighter jets and cruise missile production. These military expenditures might get ready ‘army” recruits from the less developed Euro zone and Eastern Europe, since employment generation is likely to be sluggish in these regions.
One can expect at least 2 hot wars in the next decade. One is likely to be in Argentina, since, the Falklands might generate enough possibility of new oil resources – this war is likely to push UK to get a Aircraft carrier. Chinese are likely to acquire 2 aircraft carrier groups, one for Indian Ocean Arabian sea and one for south Chine sea, to protect their oil economy. The second is probably Iran.
Exact flash points in the likely war is difficult to predict. Most likely to be Israel/UK joint attack on Iran expecting to effect a regime change. Probable in 2016. Possible scenario is Iran causing sectarian destabilization of Iraq, along Shia Sunni lines, with civil war and Hezbollah like activity by Shia militants, resulting in an oil spike. Since USA is likely to disengage from Iraq, civil war or partition of Iraq is likely. Finding it impossible to tolerate this situation, UK and Europe will attack Iran with Israeli support. Iranian meddling is likely to increase only if it is sure of Chinese offtake of its oil through transKashmir oil pipeline. This pipeline is likely to be built in 2014, after the current recession gets over and oil prices shoot above 150$ per barrel. War is very likely if Brent shoots above 300$ per barrel thanks to Iraqi instability.
Other possible flashpoints are Saudi Arabian militance/Jasmine like event.
n India’s own backyard, two main flash points will be
1. Baluchi militancy. The origin is the Pakistani highjacking of the baluchi gas fields for their own use giving little to the Sunni Baluchi. Iran also suppresses the Sunni Baluchi, resulting in them being poor tribals. Chinese intervention in this situation is likely to defuse the crisis, since Chinese have interests in piping the Baluchi gas to China.
2. TransKashmir pipelines from Pakistan to China are likely within 3-4 years and will ratchet up India China tensions. Damming of the Brahma putra will also cause tensions.
Meanwhile the Pakistani situation is fast becoming intolerable for whole world. A general degeneration of Pakistan, Afghan, Uzbek/Tajik, Baluchi regions into internecine tribal warfare is likely. Pakistan, like India, is corrupt and inefficient and very populous. Economic failures of Pakistan very similar to India but the people of the tribes are more aggressive and war like, making the situation more explosive than UP/Bihar, where people are like cattle and accept the crap.
Again, exact flash points and exact way the situation will deteriorate are difficult. Broadly, a complete fissure with USA is likely within next three years. Pakistan military is likely to join lock stock and barrel with Chinese dictatorship, but this will cause great hardship to the common people because of economic failure. Volatile situation is inevitable.
Ultimately, China, Pakistan, Iran, Shia Iraq, Syria, Afghanistan rump, North Korea, Burma and parts of French Indochina will form an Axis with probable productivity of 10 trillion combined (including 2-3 trillion from Russia which will give outside support).
Against this axis will be the Euro zone, Soudi and similar oil dictatorships, Japan and sundry affected east asian economies of some 20 trillion combined GDP. USA will stand away, but sell military hardware to the allies and India, Bangladesh, Lanka and many isolationist east and south east asian countries will also stand away, although they will diplomatically support the European alliance.
Probablilities:
1. One hot war in middle east in next decade = 90%
2. Hot war within 3 years = 30% (probably pre-emptive strike against Iran by retreating US and Euro powers with Israeli help – before the alliances and ententes are sewn up)
3. Iran withstanding the strike without regime change = 70%. Iran is too populous and powerful to crumble like Iraq, the people are solidly behind the regime and are patriotic.
4. Chances of Iran rebuilding efforts with Chinese help after strike = 90% (Iran will definitely seek help away from Western alliance and Chinese are sure to accommodate)
5. Degradation of Egypt into economic turmoil with militancy within 3 years with economic failure and loss of productivity = 40%
6. Libyan turmoil with poor oil productivity continuing for many years = 40% (situation already exists and is likely to deteriorate)
7. Turmoil in Afghanistan = 70%
8. Turmoil in Pakistan = 90%
9. Turmoil escalating in Baluchistan = 60%
10. Chinese solution for Baluchi turmoil = 10%
11. Iran transkashmir pipeline = 80% by 2015, 100% by 2020
12. US strike against Paki Nukes = 20%. They are unlikely to face the strong Pakistan military, who have already taken counter measures and have moved their nukes.
13. US leaving Pakistan within 2014 = 60%
Economics Global.
1. US slow growth for next decade with subpar to nil growth = 100%. Total per capita GDP has hit peak productivity and is unlikely to improve from here
2. Europe is likely to decline because of oil pressures and decadal growth might be nil or even negative because of aging.
3. Japan likely to show nil growth or a decrease of GDP per capita as aging continues
4. China might show moderate 7-8% growth but will grow year after year, because of good economic policies and good governance. Doubling or GDP to 10trillion $ is inevitable by 2015 or 2016, with luck by 2010 they might be 15 trillion economy, on par with US and Europe. Good place to invest.
Risks: Geopolitical ambitions might cause very volatile stock market. Risk of another cold war (10%) with US and Euro and Japan might limit the possibilities.
5. Russia likely to double per capita GDP to 25000$ and a final 2-3 trillion output, despite aging/declining population, over this decade. Good place to invest
Risks: Geopolitical adventurism with China might endanger their economy. (2% chance – Russians are smart enough to stay away and reap the rewards of oil and mineral wealth)
6. Brazil will show strong growth to 25000$ per capita GDP over this decade . They will probably reach 4 trillion with luck if enough price escalation for their resources is achieved. Best place to invest
Risks: Communistic tendencies might resurface with corruption and crony capitalism. Poor governance might reduce stock market return
7. India. Likely to show 6-7% long term growth as detailed later. Good place to invest.
Risks: Multiple governance deficits and geopolitical stupidities are likely, limiting growth to no more than 6-7 %. Returns in dollar terms are likely to be more moderate than in Rupee terms.
8. Small emerging markets: Turkey, Malaysia, Indonesia, Vietnam, Thailand likely to be the best emerging markets for returns. Middle east unlikely to get investment because of turmoil = further pressure on oil economy as their population has no other resource or human development possible.
Best dollar portfolio for long term = Brazil 30%, Russia 25%, China 10%, small emerging markets 30%, India 5%.
Probable size of global investment portfolios over next decade = 1 trillion per annum for a total of 10 trillion over next decade = 50 billion per annum of foreign capital into India as FII, FDI etc.
Indian Political situation:
Continues to be challenging. Original scenario continues to play out. Congress and BJP have deteriorated rather than improved over last one year. Chances of poor political governance probably 100%
India economic situation.
India is the poorest and least developed large country in the world. My simplified understanding of the situation (see Venkytalks for a more detailed discussion as posted elsewhere in RE bulls thread, stock advice thread etc of this site) is as follows.
Most countries have achieved 10,000$ productivity including Mexico, Brazil, Malaysia and Russia. China and Indonesia re at 5000$ productivity levels.
India is much lower at 1000$ per annum levels. Our total GDP of 1.6 trillion comes from 1 billion people at 500$ per capita productivity (= 25000Rs per annum) with output of 500 billion, 200 million at 5000$ per annum levels (= 20,000Rs per month) for 1 trillion $ and 5 million people at 25000$ per annum productivity (=1 lakh per month) for 125 billion $ for a total of around 1605 billion = 1.6 trillion $ using ball park figures.
Our middle class is therefore at 5000$ productivity and manager class is at 25000$ productivity. Our poor classes at 500$ per annum are unproductive subsistence level of productivity.
Assuming a 7% growth, in 10 years, output of 1 billion people will be 1000$ per annum.
The middle class of 200 million will double to 400 million people with output of 5000$ per annum or 200 million with output of 10000$ per annum, both scenarios resulting in output of 2 trillion.
In the former situation, more inclusive growth will take place, but people already at 20000 pm productivity will continue to earn only 20000 pm after 10 years which is a pernicious situation.
In the latter scenario, there will be no increase in number of people in the middle class, but their productivity will increase to 40000 pm levels. Since the poor will be still at 1000$ per annum = 5000 Rs pm levels, this will increase disparity.
In the manager class, again, either the populations will double to 10 million people at 1 lakh per month productivity or population will remain same at 5 million with 2 lakh per month productivity. Since these are the people who can afford proper real estate, getting an exact handle on which of the two scenarios is likely is important.
My estimate is of course the middle of the road. So from 5 million they will become 7 million at 35000$ per capita, amounting for 250 billion dollars of productivity. 35000$ is close to the peak productivity levels of Europe, Japan and USA and as explained earlier, it is unlikely to exeed this level in a country like India.
Most of this doubling will come from the children of already existing manager class and engineers.
An analysis of these numbers assuming 7% growth per annum meaning a doubling after 10 years reveals the economic failures inherent in our low grade economic growth. Without growth above 10% (i.e 3 trillion economy in 2017 vs 2020 in above scenario) India faces a disaster. Governance failure is costing us a terrible price indeed.
The poor quality of politics witnessed in 2011 is indicating that India cannot grow consistently above 7%. All growth above 7% is a mirage – caused only by high inflation and currency depreciation hiding the subpar performance.
Already, the 1.4$ trillion economy of 2010 has failed to translate into 1.6 trillion in 2011 – instead, the currency depreciation has wiped out our growth and real growth is probably negative. Assuming 7.5 % eventual growth in 2011 and 15% currency depreciation in 2011, our GDP is probably now 1.2 trillion instead of 1.6 trillion, i.e negative growth of 7.5%.
Probable long term trends over next decade:
1. Inflation will be 7-10% per annum for this decade
2. Currency depreciation of 5% per annum can be assumed, contributing half of the anticipated inflation
3. Growth will be 6-7% over the decade. Any growth above 7% will be accompanies by higher inflation and Rupee depreciation which will be above the norms causing degrowth rather than growth as seen in 2011.
4. RBI stimulus of rate reduction will fail because any growth ahead of fundamentals by such artificial stimulation will cause inflation and depreciation to wipe out the growth in dollar terms
Extreme long term trend – inevitable growth of India over next 3 decades causing a 5 fold increase of productivity from 1.2-1.4 trillion currently to about 15 trillion eventual output of 10,000$ per capita.at a population of 1.5 billion.
This will compare to Chinese output of 50 trillion with population of 1.5 billion at output levels of 35000$ per capita in the next 3 decades in best case scenario and worst case scenario of 30 trillion at 20,000 $ per annum per capita productivity.
Note: Growth from 1 to 15 is a 15 times growth while 5 to 30 is a 6 times growth and 5 to 50 is a 10 times growth.
Inevitability of India increase in production has reduced somewhat given the much higher levels if misgovernance witnessed in 2011, while best case scenario for China has improved, given the great performance of its govt in 2011.
I have come up with some new concepts for asset allocation.
1. Asset of multiple (3) decades: This is the One asset which will decide whether your investments will sustain you during your retirement or not i.e, if you entered this in your thirties, you will be very comfortable in your sisties and beyond.
In the 1960s, it was real estate (plot in South Extension), in the 1970s it was real estate (Janakpuri and Munirka flats), in the 1980s it was real estate (DDA flats everywhere), in the 1990s it was real estate (Gurgaon) although it is still not 3 decades, but already it has proved to be the investment of 3 decades from returns in 20 years itself.
So in history of India, you cannot afford not to be in real estate. You cannot retire without owning your own home at least
My prediction for asset of multiple decades for 2000s (by 2030) = real estate.
This is because I feel that 2010 to 2020 will be a bad year for stocks and with high inflation and depreciation of currency and probable wars in the region, stocks will be more risky and real estate should do equally well or better than stocks even into 2030.
My prediction for asset of multiple decades for 2010s (by 2040) = stocks.
It is inevitable as India matures that the hinterland will be opened up for real estate development, which will reduce the premium for RE. After 2020, real estate will lose its charm and stocks will outperform.
2. Asset of the decade: This is the asset which on holding for many years in a buy and hold strategy, delivers best and safest returns. Safest is important because if another asset gives better returns with less risk, it is preferred.
In the 1960s it was FD (not real estate because it was a difficult market to enter), in the 1970s it was FD (not real estate because of same reason, not gold because it was too volatile), in the 1980s it was real estate (safer options and increased income made it possible to reduce risk, gold was volatile and depended on Rupee depreciation), in 1990s it was FD, in 2000 it was stocks (safer and more liquid than real estate, safer than gold due to lack of currency risk).
My prediction for 2010-2020 = real estate.
Stocks will be volatile and risky. this current decade is the decade when real estate will guard against inflation. Poor governance and corruption and black money will ensure that real estate will still be the best investment. I think FDs will also be a good investment over this decade. I prefer real estate over FD because currently, real estate is better regulated than in the 1970s and 1960s and safer investments are possible
3. Avoidance of a decade: The asset you should avoid in a whole decade because it kills the return - the rest are OK
In 1960s it was gold and stocks (FD and real estate were OK), in 1970s it was stocks (Gold, FD and real estate were OK), in 1980s it was gold (stocks, FD and real estate were OK), in 1990s it was gold and real estate (FDs and stocks were OK), in 2000s it was FD (stocks, real estate and gold were great).
My prediction for asset to avoid for 2010-2010 is again gold. Stocks, real estate and FDs should be OK.
4. Asset of the year:
This is the asset for either short term trading or the asset in which long term investors should increase exposure because it will give the best return.
Asset of the year in 2009 was stocks, in 2010 it was real estate, 2011 it was FD.
My prediction for 2012: Asset of the year is FD.
5. Asset to avoid for the year: This is the asset which is likely to kill returns.
For 2008 it was stocks, for 2009 it was FD, for 2010 it was nil (everything was good), for 2011 it was stocks.
My prediction for asset to avoid in 2012 is gold
Gold is self evident - risky and multile currency event risks which are unpredictable. Real estate should be OK if later this year, if prices correct and RBI lowers rates. Stocks should be OK if they fall some more and Rupee depreciates some more. FD is anyway best for the year.
Predictions for 2012
Politics: Samajwadi and Congress form govt in UP. Based on poor performance of BMW so far - firing ministers has only confirmed that they were corrupt. Extreme stupidity. Minority reservation should pay rich dividends for Congress. Ajit Sigh might perform very well in Western UP, Congress and SP might have informal seat sharing and increase muslim vote share. BMW will lose muslim and brahmin votes - congress will get brahmin votes. SP plus Ajit plus Congress is a winning combination. BJP will be wiped out in UP (also in Uttarakhand and Punjab). Mayawati seems to have blundered and her game plan has boomeranged. UP everything is caste. Muslim - Yadav - Brahmin - Jat combination for SP+Congress+RLD will definitely win the election. This is already seen on the ground. With splitting of remainder of votes - BJP getting Thakur/Bania and BSP getting Dalit votes and the rest evenly divided, there is little chance of BSP returning.
Her firing of ministers has only confirmed her corruption - it shows her in bad rather than good light. Her statehood division is seen as a ploy which fell flat after initially trumping the congress. Rahul efforts are largely seen to be bearing fruit.
Basically, the new combination is becoming the wisdom on the ground and is commonly acknowledged. This prediction is nothing new - many have already done so and is commomplace now.
Farmers of Bulandshahar and NOIDA are essentially not happy and will go with Congress/RLD combine. This was supposed to be the big benefit for BMW which has failed to materialise.
A lost election spells big trouble for BMW. CBI disproportionate asset case will be active again. New cases will be filed. Many big developers like JP, 3C, Wave, NRI etc will be troubled with new bribes needed = big losses.
Rapproachment between Mukesh (congress) and Anil (SP) Ambani is also acknowledgement of shifting in power equations in politics. Mukesh was being hounded for bribes by Congress and if SP winds, the two brothers will emerge again as kingmakers (after Mukesh was in minor difficulties)
It may cause project abandonment in NOIDA and GNOIDA area in 2012. Until election results, one should stay away from NOIDA RE. One should also avoid JP and JP infra stocks
Inflation: Will stay firm. Food prices will fall but imported inflation will continue. I expect about 7-9% inflation for 2012. inflation will be fed by NREGA - farmers will earn less on crops but their NREGA money will go a lot longer with low food prices, making the rural economy buoyant.
Currency: Dollar will stay firm. Rupee will be stable with negative bias. Rupee at 54 chance is 60%, Rupee between 54-60 chance is 30% and Rupee below 60 is 10%
Ecconomy: It will degrow for one quarter till budget and then bounce back very strong. Rural economy will be strong and will lead the bounce. Final growth for 2012 about 6%
Stocks: Will be stable or fall 5-10% in first half of 2012. Second half is likely to outperform. Sen should fall below 15000 in the first half (50% probablity - great buying opportunity). It should cross 18000 at some time in the year (60% probability). It might cross 20000 (30% probability - will be a sellin opportunity and a chance to rebalance stock portfolio and shift mutual funds to more defensive bets)
Bonds: Should be stable. Any rise is unlikely. I dont think RBI will be able to lower rates, since it has to defend Rupee and that requires rates to be high. Stable to mild fall is likely. Best asset in bonds is a bond fund - will benefit from any fall. My prediction for yields at end of 2012 is above 8% (30%) and above 7% (70%). Not more than 1% fall in other terms.
Gold: It should be stable with negative bias - I expect no change with gyrations of plus minus 10% over the year. Avoid this asset.
Sector allocations for 2012:
Maintain Bonds 30% (shift maturing FDs and FMP to short term funds, shift some 10% interest into equities when markets fall)
Stocks 30% (should have fallen from 2011, increase exposure at falls)
Real estate 25% (no fresh allocations after 2011, maintain previous, dont sell existing investments))
Gold 0-5% (cut exposure to 5% now, get rid of rest if gold reaches 28000-30000 levels)
Global Funds: 10-15% (shift gold into Latin American funds, energy funds, global real estate fund)
Equity allocation: Mutual funds 50%, direct stocks 50%
For direct equity
Banks 15%
IT 15%
FMCG 15%
Pharma 15%
Auto 10%
Power 2-5%
Plastics 2-5%
Metal 2-5%
Utility 2-5%
Paints 2-5%
Gems 2-5%
Services 2-5%
Agro 2-5%
Misc 2-5%
2012 Recommendation (choose from following stocks according to sector allocation)
1. HDFC Bank, (now)
2. Yes Bank, (now)
3. ICICI Bank, (after 3 months)
4. SBI (after 3 months)
5. Infosys, (now)
6. TCS, (now)
7. HCL, (now)
8. eclerx (now)
9. Godrej, (after 3 months)
10. Bata, (now)
11. ITC (after 3 months)
12. Sun, (after 3 months)
13. Cadila, (after 3 months)
14. Lupin, (after 3 months)
15. Divi (after 3 months)
16. Bajaj, (now)
17. Bajaj Electricals (now)
18. Mahindra, (now)
19. Exide (after 3 months)
20. BHEL, (after 3 months)
21. Crompton greaves, (after 3 months)
22. Cummins (now)
23. HiTech, (after 3 months)
24. Sintex (now)
25. Hin Zin, (after 3 months)
26. Tinplate (after 3 months)
27. IGL, (after 3 months)
28. Power Grid (after 3 months)
29. PTC(after 3 months)
30. Asian Paints (after 3 months)
31. Gitanjali, (after 3 months)
32. Rajesh (after 3 months)
33. ICRA (after 3 months)
34. United Phosphates (now)
35. Talwalkars, (now)
In any asset allocation, stock/RE will always be there. To increase the allocation in a particular year, one can always find a specific stock or a specific location/RE type (land/flat/commercial) which is undervalued - and one should allocate in that specific sector of the asset.
For stock I have already posted above.
For real estate, while I dont think RE will do well in 2012, if one mush allocate, some sectors are still attractive.
Real estate reccomendations:
1. In Gurgaon, I feel HUDA plots in developed areas, G99/Amstoria plots, resale purchase of Emmar/Pioneer flats in GCX, resale purchase of DLF/Tulip in SPR, Most of the new luxury launches in GCX between 6500-7500 price range are good bets. Also, resale of Vatika and other NH8 flats and resale plots at 55000 to 60000 prices will make a lot of sense.
Avoid extreme overpriced luxury specs beyond 7500 psf in GCX flats, all flats in DEway, commercial (all), overpriced plots in GCX beyond 70,000 (i.e original white purchases at company prices to be avoided). Also avoid Daruhera plots. Manesar plots also doubtful.
2. NOIDA I think will have a troubled 2012 because of political change. Prices in resale and distress re-sales in some instances may throw up good opportunity for buying at low prices.
For investment, expressway resale purchases at 3000-3500 psf in BSP in good builders are a good opportunity (137. JP, Today 135 etc). Plots in GNOIDA pari chowk area might be available at lower prices by end of 2012 when it might be an attractive entry at 30000-35000 psy. Commercial in the form of NA shops or mixed commercial/residential areas might see good appreciation. Buying RTM villas and flats in old NOIDA sectors might give the best returns in 2012 through 2015.
Avoid new launches completely. Avoid luxury in 2012 unless there is significant correction and distress sale (likely soon).Avoid LB/LP, mall type commercials. Avoid plots in Yamuna expressway or any purchases in expressway area - likely to be stressed in 2012. If BSP is defeated, JP plots in expressway might see problems and distress sales unless enough bribes are forthcoming - even then JP will be in trouble because of identification (old favourites have to be troubled - that is the unwritten rule of politics).
3. Kundli, Faridabad, Main Delhi - Avoid all.
Shop purchases in Dilshad garden Vikaspuri etc might be the best bet in Delhi - although prices are too high, one can strike a good shop deal in periphery. Shops in old colonies like Gulmohar park, Niti Bagh etc might see a sudden traction with prices shooting from 70L to 1 Cr plus - many businesses might suddenly start renting these shops in good areas with parking and facilities - including restaurants which dont get enough parking in lal dora areas.
4. Ghaziabad - best destination for small time investors and rental property. Expect good lift in prices in 2012 with major deliveries. Shops are also good investment here.
5. Bombay - avoid flats. Expect plateau to downward prices for 2012. Commercial RE in various locations are currently down and form the best bet for 2012 through to 2015. Old city locations might be the best followed by mulund, thane, Kalyan etc.
6. Pune - I think it will be down. But dont follow the RE scene there.
7.Bangalore, Chennai likely to be up in 2012 as rates are lowered (more linkage to IT firms).
8. Tier 2 and tier 3 towns should stay plateaued.
onomy:
In all of these countries, military dictators with erstwhile super power support have fallen – Libya and Syria remainders of Soviet empire, Egypt American empire. The main reason for superpower involvement has been oil economy of middle east. Egypt, Syria and Tunisia don’t have much oil, Yemen and Libya have antiquated oil infrastructure requiring capital infusion, making cost of extraction much above 25$ per barrel.
While much has been made of non-militant Islamic nature of the revolution, it is likely that most if not all of these countries might degenerate into sectarian conflicts. Violence even in non-oil producing countries is likely to have a spill over effect into Soudi and Kuwaiti administration.
This revolution is therefore deleterious and will damage the stability of the entire region. This is a big negative for India and for oil prices going forward.
Broad long term directions emerging out of this middle east churning are likely to be:
1. Increase in cost of oil production. This is likely to emanate from the increased social sector spending required from Saudi and Kuwaiti rulers to placate their population. So real cost of production will include the increased welfare expenditure. This is a big cost compared to the rock bottom prices of extraction currently.
2. Increasing distancing of US from the crisis. US has greatly improved the oil infrastructure of Iraq but US has benefited little. US is now shifting to Mexican and Brazilian Crude, Lousiana Crude, Gasification of coal, Shale gas and fracting extraction methods, and Canadian tar sands as their main energy source.
3. Increasing competition for middle eastern crude between Europe and China, with USA standing aloof is now likely. US will not invest in a region where it is not getting returns in terms of oil
4. Increasing premium for Brent Crude, currently 10$ above WTI on Nymex. In times of stress this is likely to increase to a high of 20-25$ above WTI in times of geopolitical tension
5. Chinese growth even during these recessionary times is likely to push the remaining excess capacity in Soudia (currently producing at 85-90% of total capacity) to full capacity utilization within 3-4 years.
6. India will be a passive spectator, deeply affected by this premium for our own crude, benchmarked to Brent.
7. By 2016, Chinese growth is likely to be stifled by increasing energy prices. US will stand unaffected because of their national resources. Chinese growth is likely to moderate and be around 7-8% per annum because of these two stifles i.e. 1. Oil price increases in Brent and 2. Decreased capacity for Europe and USA to consume Chinese manufacture, lack of markets.
Chinese responses to this situation will be two fold.
1. Increased conflicts in South Chinese oil exploration
2. Increased links with Iran.
US is unlikely to expend capital on a situation which does not benefit directly. Decreasing production of North Sea oil is likely to push UK and Norway to increased dependence on Brent. France, Germany and Italy also heavily dependent on Brent and are likely to see no growth. Increased military co-operation between European nations is likely from 2014 onwards, probably under British leadership – so UK is likely to stay out of the Euro but is likely to lead military adventurism in Iran, Iraq, Baluchistan, Algeria and Libya. Of the Euro zone, it has the strongest military and blue water navy. They are likely to acquire a Aircraft carrier (currently lacking) and increase fighter jets and cruise missile production. These military expenditures might get ready ‘army” recruits from the less developed Euro zone and Eastern Europe, since employment generation is likely to be sluggish in these regions.
One can expect at least 2 hot wars in the next decade. One is likely to be in Argentina, since, the Falklands might generate enough possibility of new oil resources – this war is likely to push UK to get a Aircraft carrier. Chinese are likely to acquire 2 aircraft carrier groups, one for Indian Ocean Arabian sea and one for south Chine sea, to protect their oil economy. The second is probably Iran.
Exact flash points in the likely war is difficult to predict. Most likely to be Israel/UK joint attack on Iran expecting to effect a regime change. Probable in 2016. Possible scenario is Iran causing sectarian destabilization of Iraq, along Shia Sunni lines, with civil war and Hezbollah like activity by Shia militants, resulting in an oil spike. Since USA is likely to disengage from Iraq, civil war or partition of Iraq is likely. Finding it impossible to tolerate this situation, UK and Europe will attack Iran with Israeli support. Iranian meddling is likely to increase only if it is sure of Chinese offtake of its oil through transKashmir oil pipeline. This pipeline is likely to be built in 2014, after the current recession gets over and oil prices shoot above 150$ per barrel. War is very likely if Brent shoots above 300$ per barrel thanks to Iraqi instability.
Other possible flashpoints are Saudi Arabian militance/Jasmine like event.
n India’s own backyard, two main flash points will be
1. Baluchi militancy. The origin is the Pakistani highjacking of the baluchi gas fields for their own use giving little to the Sunni Baluchi. Iran also suppresses the Sunni Baluchi, resulting in them being poor tribals. Chinese intervention in this situation is likely to defuse the crisis, since Chinese have interests in piping the Baluchi gas to China.
2. TransKashmir pipelines from Pakistan to China are likely within 3-4 years and will ratchet up India China tensions. Damming of the Brahma putra will also cause tensions.
Meanwhile the Pakistani situation is fast becoming intolerable for whole world. A general degeneration of Pakistan, Afghan, Uzbek/Tajik, Baluchi regions into internecine tribal warfare is likely. Pakistan, like India, is corrupt and inefficient and very populous. Economic failures of Pakistan very similar to India but the people of the tribes are more aggressive and war like, making the situation more explosive than UP/Bihar, where people are like cattle and accept the crap.
Again, exact flash points and exact way the situation will deteriorate are difficult. Broadly, a complete fissure with USA is likely within next three years. Pakistan military is likely to join lock stock and barrel with Chinese dictatorship, but this will cause great hardship to the common people because of economic failure. Volatile situation is inevitable.
Ultimately, China, Pakistan, Iran, Shia Iraq, Syria, Afghanistan rump, North Korea, Burma and parts of French Indochina will form an Axis with probable productivity of 10 trillion combined (including 2-3 trillion from Russia which will give outside support).
Against this axis will be the Euro zone, Soudi and similar oil dictatorships, Japan and sundry affected east asian economies of some 20 trillion combined GDP. USA will stand away, but sell military hardware to the allies and India, Bangladesh, Lanka and many isolationist east and south east asian countries will also stand away, although they will diplomatically support the European alliance.
Probablilities:
1. One hot war in middle east in next decade = 90%
2. Hot war within 3 years = 30% (probably pre-emptive strike against Iran by retreating US and Euro powers with Israeli help – before the alliances and ententes are sewn up)
3. Iran withstanding the strike without regime change = 70%. Iran is too populous and powerful to crumble like Iraq, the people are solidly behind the regime and are patriotic.
4. Chances of Iran rebuilding efforts with Chinese help after strike = 90% (Iran will definitely seek help away from Western alliance and Chinese are sure to accommodate)
5. Degradation of Egypt into economic turmoil with militancy within 3 years with economic failure and loss of productivity = 40%
6. Libyan turmoil with poor oil productivity continuing for many years = 40% (situation already exists and is likely to deteriorate)
7. Turmoil in Afghanistan = 70%
8. Turmoil in Pakistan = 90%
9. Turmoil escalating in Baluchistan = 60%
10. Chinese solution for Baluchi turmoil = 10%
11. Iran transkashmir pipeline = 80% by 2015, 100% by 2020
12. US strike against Paki Nukes = 20%. They are unlikely to face the strong Pakistan military, who have already taken counter measures and have moved their nukes.
13. US leaving Pakistan within 2014 = 60%
Economics Global.
1. US slow growth for next decade with subpar to nil growth = 100%. Total per capita GDP has hit peak productivity and is unlikely to improve from here
2. Europe is likely to decline because of oil pressures and decadal growth might be nil or even negative because of aging.
3. Japan likely to show nil growth or a decrease of GDP per capita as aging continues
4. China might show moderate 7-8% growth but will grow year after year, because of good economic policies and good governance. Doubling or GDP to 10trillion $ is inevitable by 2015 or 2016, with luck by 2010 they might be 15 trillion economy, on par with US and Europe. Good place to invest.
Risks: Geopolitical ambitions might cause very volatile stock market. Risk of another cold war (10%) with US and Euro and Japan might limit the possibilities.
5. Russia likely to double per capita GDP to 25000$ and a final 2-3 trillion output, despite aging/declining population, over this decade. Good place to invest
Risks: Geopolitical adventurism with China might endanger their economy. (2% chance – Russians are smart enough to stay away and reap the rewards of oil and mineral wealth)
6. Brazil will show strong growth to 25000$ per capita GDP over this decade . They will probably reach 4 trillion with luck if enough price escalation for their resources is achieved. Best place to invest
Risks: Communistic tendencies might resurface with corruption and crony capitalism. Poor governance might reduce stock market return
7. India. Likely to show 6-7% long term growth as detailed later. Good place to invest.
Risks: Multiple governance deficits and geopolitical stupidities are likely, limiting growth to no more than 6-7 %. Returns in dollar terms are likely to be more moderate than in Rupee terms.
8. Small emerging markets: Turkey, Malaysia, Indonesia, Vietnam, Thailand likely to be the best emerging markets for returns. Middle east unlikely to get investment because of turmoil = further pressure on oil economy as their population has no other resource or human development possible.
Best dollar portfolio for long term = Brazil 30%, Russia 25%, China 10%, small emerging markets 30%, India 5%.
Probable size of global investment portfolios over next decade = 1 trillion per annum for a total of 10 trillion over next decade = 50 billion per annum of foreign capital into India as FII, FDI etc.
Indian Political situation:
Continues to be challenging. Original scenario continues to play out. Congress and BJP have deteriorated rather than improved over last one year. Chances of poor political governance probably 100%
India economic situation.
India is the poorest and least developed large country in the world. My simplified understanding of the situation (see Venkytalks for a more detailed discussion as posted elsewhere in RE bulls thread, stock advice thread etc of this site) is as follows.
Most countries have achieved 10,000$ productivity including Mexico, Brazil, Malaysia and Russia. China and Indonesia re at 5000$ productivity levels.
India is much lower at 1000$ per annum levels. Our total GDP of 1.6 trillion comes from 1 billion people at 500$ per capita productivity (= 25000Rs per annum) with output of 500 billion, 200 million at 5000$ per annum levels (= 20,000Rs per month) for 1 trillion $ and 5 million people at 25000$ per annum productivity (=1 lakh per month) for 125 billion $ for a total of around 1605 billion = 1.6 trillion $ using ball park figures.
Our middle class is therefore at 5000$ productivity and manager class is at 25000$ productivity. Our poor classes at 500$ per annum are unproductive subsistence level of productivity.
Assuming a 7% growth, in 10 years, output of 1 billion people will be 1000$ per annum.
The middle class of 200 million will double to 400 million people with output of 5000$ per annum or 200 million with output of 10000$ per annum, both scenarios resulting in output of 2 trillion.
In the former situation, more inclusive growth will take place, but people already at 20000 pm productivity will continue to earn only 20000 pm after 10 years which is a pernicious situation.
In the latter scenario, there will be no increase in number of people in the middle class, but their productivity will increase to 40000 pm levels. Since the poor will be still at 1000$ per annum = 5000 Rs pm levels, this will increase disparity.
In the manager class, again, either the populations will double to 10 million people at 1 lakh per month productivity or population will remain same at 5 million with 2 lakh per month productivity. Since these are the people who can afford proper real estate, getting an exact handle on which of the two scenarios is likely is important.
My estimate is of course the middle of the road. So from 5 million they will become 7 million at 35000$ per capita, amounting for 250 billion dollars of productivity. 35000$ is close to the peak productivity levels of Europe, Japan and USA and as explained earlier, it is unlikely to exeed this level in a country like India.
Most of this doubling will come from the children of already existing manager class and engineers.
An analysis of these numbers assuming 7% growth per annum meaning a doubling after 10 years reveals the economic failures inherent in our low grade economic growth. Without growth above 10% (i.e 3 trillion economy in 2017 vs 2020 in above scenario) India faces a disaster. Governance failure is costing us a terrible price indeed.
The poor quality of politics witnessed in 2011 is indicating that India cannot grow consistently above 7%. All growth above 7% is a mirage – caused only by high inflation and currency depreciation hiding the subpar performance.
Already, the 1.4$ trillion economy of 2010 has failed to translate into 1.6 trillion in 2011 – instead, the currency depreciation has wiped out our growth and real growth is probably negative. Assuming 7.5 % eventual growth in 2011 and 15% currency depreciation in 2011, our GDP is probably now 1.2 trillion instead of 1.6 trillion, i.e negative growth of 7.5%.
Probable long term trends over next decade:
1. Inflation will be 7-10% per annum for this decade
2. Currency depreciation of 5% per annum can be assumed, contributing half of the anticipated inflation
3. Growth will be 6-7% over the decade. Any growth above 7% will be accompanies by higher inflation and Rupee depreciation which will be above the norms causing degrowth rather than growth as seen in 2011.
4. RBI stimulus of rate reduction will fail because any growth ahead of fundamentals by such artificial stimulation will cause inflation and depreciation to wipe out the growth in dollar terms
Extreme long term trend – inevitable growth of India over next 3 decades causing a 5 fold increase of productivity from 1.2-1.4 trillion currently to about 15 trillion eventual output of 10,000$ per capita.at a population of 1.5 billion.
This will compare to Chinese output of 50 trillion with population of 1.5 billion at output levels of 35000$ per capita in the next 3 decades in best case scenario and worst case scenario of 30 trillion at 20,000 $ per annum per capita productivity.
Note: Growth from 1 to 15 is a 15 times growth while 5 to 30 is a 6 times growth and 5 to 50 is a 10 times growth.
Inevitability of India increase in production has reduced somewhat given the much higher levels if misgovernance witnessed in 2011, while best case scenario for China has improved, given the great performance of its govt in 2011.
I have come up with some new concepts for asset allocation.
1. Asset of multiple (3) decades: This is the One asset which will decide whether your investments will sustain you during your retirement or not i.e, if you entered this in your thirties, you will be very comfortable in your sisties and beyond.
In the 1960s, it was real estate (plot in South Extension), in the 1970s it was real estate (Janakpuri and Munirka flats), in the 1980s it was real estate (DDA flats everywhere), in the 1990s it was real estate (Gurgaon) although it is still not 3 decades, but already it has proved to be the investment of 3 decades from returns in 20 years itself.
So in history of India, you cannot afford not to be in real estate. You cannot retire without owning your own home at least
My prediction for asset of multiple decades for 2000s (by 2030) = real estate.
This is because I feel that 2010 to 2020 will be a bad year for stocks and with high inflation and depreciation of currency and probable wars in the region, stocks will be more risky and real estate should do equally well or better than stocks even into 2030.
My prediction for asset of multiple decades for 2010s (by 2040) = stocks.
It is inevitable as India matures that the hinterland will be opened up for real estate development, which will reduce the premium for RE. After 2020, real estate will lose its charm and stocks will outperform.
2. Asset of the decade: This is the asset which on holding for many years in a buy and hold strategy, delivers best and safest returns. Safest is important because if another asset gives better returns with less risk, it is preferred.
In the 1960s it was FD (not real estate because it was a difficult market to enter), in the 1970s it was FD (not real estate because of same reason, not gold because it was too volatile), in the 1980s it was real estate (safer options and increased income made it possible to reduce risk, gold was volatile and depended on Rupee depreciation), in 1990s it was FD, in 2000 it was stocks (safer and more liquid than real estate, safer than gold due to lack of currency risk).
My prediction for 2010-2020 = real estate.
Stocks will be volatile and risky. this current decade is the decade when real estate will guard against inflation. Poor governance and corruption and black money will ensure that real estate will still be the best investment. I think FDs will also be a good investment over this decade. I prefer real estate over FD because currently, real estate is better regulated than in the 1970s and 1960s and safer investments are possible
3. Avoidance of a decade: The asset you should avoid in a whole decade because it kills the return - the rest are OK
In 1960s it was gold and stocks (FD and real estate were OK), in 1970s it was stocks (Gold, FD and real estate were OK), in 1980s it was gold (stocks, FD and real estate were OK), in 1990s it was gold and real estate (FDs and stocks were OK), in 2000s it was FD (stocks, real estate and gold were great).
My prediction for asset to avoid for 2010-2010 is again gold. Stocks, real estate and FDs should be OK.
4. Asset of the year:
This is the asset for either short term trading or the asset in which long term investors should increase exposure because it will give the best return.
Asset of the year in 2009 was stocks, in 2010 it was real estate, 2011 it was FD.
My prediction for 2012: Asset of the year is FD.
5. Asset to avoid for the year: This is the asset which is likely to kill returns.
For 2008 it was stocks, for 2009 it was FD, for 2010 it was nil (everything was good), for 2011 it was stocks.
My prediction for asset to avoid in 2012 is gold
Gold is self evident - risky and multile currency event risks which are unpredictable. Real estate should be OK if later this year, if prices correct and RBI lowers rates. Stocks should be OK if they fall some more and Rupee depreciates some more. FD is anyway best for the year.
Predictions for 2012
Politics: Samajwadi and Congress form govt in UP. Based on poor performance of BMW so far - firing ministers has only confirmed that they were corrupt. Extreme stupidity. Minority reservation should pay rich dividends for Congress. Ajit Sigh might perform very well in Western UP, Congress and SP might have informal seat sharing and increase muslim vote share. BMW will lose muslim and brahmin votes - congress will get brahmin votes. SP plus Ajit plus Congress is a winning combination. BJP will be wiped out in UP (also in Uttarakhand and Punjab). Mayawati seems to have blundered and her game plan has boomeranged. UP everything is caste. Muslim - Yadav - Brahmin - Jat combination for SP+Congress+RLD will definitely win the election. This is already seen on the ground. With splitting of remainder of votes - BJP getting Thakur/Bania and BSP getting Dalit votes and the rest evenly divided, there is little chance of BSP returning.
Her firing of ministers has only confirmed her corruption - it shows her in bad rather than good light. Her statehood division is seen as a ploy which fell flat after initially trumping the congress. Rahul efforts are largely seen to be bearing fruit.
Basically, the new combination is becoming the wisdom on the ground and is commonly acknowledged. This prediction is nothing new - many have already done so and is commomplace now.
Farmers of Bulandshahar and NOIDA are essentially not happy and will go with Congress/RLD combine. This was supposed to be the big benefit for BMW which has failed to materialise.
A lost election spells big trouble for BMW. CBI disproportionate asset case will be active again. New cases will be filed. Many big developers like JP, 3C, Wave, NRI etc will be troubled with new bribes needed = big losses.
Rapproachment between Mukesh (congress) and Anil (SP) Ambani is also acknowledgement of shifting in power equations in politics. Mukesh was being hounded for bribes by Congress and if SP winds, the two brothers will emerge again as kingmakers (after Mukesh was in minor difficulties)
It may cause project abandonment in NOIDA and GNOIDA area in 2012. Until election results, one should stay away from NOIDA RE. One should also avoid JP and JP infra stocks
Inflation: Will stay firm. Food prices will fall but imported inflation will continue. I expect about 7-9% inflation for 2012. inflation will be fed by NREGA - farmers will earn less on crops but their NREGA money will go a lot longer with low food prices, making the rural economy buoyant.
Currency: Dollar will stay firm. Rupee will be stable with negative bias. Rupee at 54 chance is 60%, Rupee between 54-60 chance is 30% and Rupee below 60 is 10%
Ecconomy: It will degrow for one quarter till budget and then bounce back very strong. Rural economy will be strong and will lead the bounce. Final growth for 2012 about 6%
Stocks: Will be stable or fall 5-10% in first half of 2012. Second half is likely to outperform. Sen should fall below 15000 in the first half (50% probablity - great buying opportunity). It should cross 18000 at some time in the year (60% probability). It might cross 20000 (30% probability - will be a sellin opportunity and a chance to rebalance stock portfolio and shift mutual funds to more defensive bets)
Bonds: Should be stable. Any rise is unlikely. I dont think RBI will be able to lower rates, since it has to defend Rupee and that requires rates to be high. Stable to mild fall is likely. Best asset in bonds is a bond fund - will benefit from any fall. My prediction for yields at end of 2012 is above 8% (30%) and above 7% (70%). Not more than 1% fall in other terms.
Gold: It should be stable with negative bias - I expect no change with gyrations of plus minus 10% over the year. Avoid this asset.
Sector allocations for 2012:
Maintain Bonds 30% (shift maturing FDs and FMP to short term funds, shift some 10% interest into equities when markets fall)
Stocks 30% (should have fallen from 2011, increase exposure at falls)
Real estate 25% (no fresh allocations after 2011, maintain previous, dont sell existing investments))
Gold 0-5% (cut exposure to 5% now, get rid of rest if gold reaches 28000-30000 levels)
Global Funds: 10-15% (shift gold into Latin American funds, energy funds, global real estate fund)
Equity allocation: Mutual funds 50%, direct stocks 50%
For direct equity
Banks 15%
IT 15%
FMCG 15%
Pharma 15%
Auto 10%
Power 2-5%
Plastics 2-5%
Metal 2-5%
Utility 2-5%
Paints 2-5%
Gems 2-5%
Services 2-5%
Agro 2-5%
Misc 2-5%
2012 Recommendation (choose from following stocks according to sector allocation)
1. HDFC Bank, (now)
2. Yes Bank, (now)
3. ICICI Bank, (after 3 months)
4. SBI (after 3 months)
5. Infosys, (now)
6. TCS, (now)
7. HCL, (now)
8. eclerx (now)
9. Godrej, (after 3 months)
10. Bata, (now)
11. ITC (after 3 months)
12. Sun, (after 3 months)
13. Cadila, (after 3 months)
14. Lupin, (after 3 months)
15. Divi (after 3 months)
16. Bajaj, (now)
17. Bajaj Electricals (now)
18. Mahindra, (now)
19. Exide (after 3 months)
20. BHEL, (after 3 months)
21. Crompton greaves, (after 3 months)
22. Cummins (now)
23. HiTech, (after 3 months)
24. Sintex (now)
25. Hin Zin, (after 3 months)
26. Tinplate (after 3 months)
27. IGL, (after 3 months)
28. Power Grid (after 3 months)
29. PTC(after 3 months)
30. Asian Paints (after 3 months)
31. Gitanjali, (after 3 months)
32. Rajesh (after 3 months)
33. ICRA (after 3 months)
34. United Phosphates (now)
35. Talwalkars, (now)
In any asset allocation, stock/RE will always be there. To increase the allocation in a particular year, one can always find a specific stock or a specific location/RE type (land/flat/commercial) which is undervalued - and one should allocate in that specific sector of the asset.
For stock I have already posted above.
For real estate, while I dont think RE will do well in 2012, if one mush allocate, some sectors are still attractive.
Real estate reccomendations:
1. In Gurgaon, I feel HUDA plots in developed areas, G99/Amstoria plots, resale purchase of Emmar/Pioneer flats in GCX, resale purchase of DLF/Tulip in SPR, Most of the new luxury launches in GCX between 6500-7500 price range are good bets. Also, resale of Vatika and other NH8 flats and resale plots at 55000 to 60000 prices will make a lot of sense.
Avoid extreme overpriced luxury specs beyond 7500 psf in GCX flats, all flats in DEway, commercial (all), overpriced plots in GCX beyond 70,000 (i.e original white purchases at company prices to be avoided). Also avoid Daruhera plots. Manesar plots also doubtful.
2. NOIDA I think will have a troubled 2012 because of political change. Prices in resale and distress re-sales in some instances may throw up good opportunity for buying at low prices.
For investment, expressway resale purchases at 3000-3500 psf in BSP in good builders are a good opportunity (137. JP, Today 135 etc). Plots in GNOIDA pari chowk area might be available at lower prices by end of 2012 when it might be an attractive entry at 30000-35000 psy. Commercial in the form of NA shops or mixed commercial/residential areas might see good appreciation. Buying RTM villas and flats in old NOIDA sectors might give the best returns in 2012 through 2015.
Avoid new launches completely. Avoid luxury in 2012 unless there is significant correction and distress sale (likely soon).Avoid LB/LP, mall type commercials. Avoid plots in Yamuna expressway or any purchases in expressway area - likely to be stressed in 2012. If BSP is defeated, JP plots in expressway might see problems and distress sales unless enough bribes are forthcoming - even then JP will be in trouble because of identification (old favourites have to be troubled - that is the unwritten rule of politics).
3. Kundli, Faridabad, Main Delhi - Avoid all.
Shop purchases in Dilshad garden Vikaspuri etc might be the best bet in Delhi - although prices are too high, one can strike a good shop deal in periphery. Shops in old colonies like Gulmohar park, Niti Bagh etc might see a sudden traction with prices shooting from 70L to 1 Cr plus - many businesses might suddenly start renting these shops in good areas with parking and facilities - including restaurants which dont get enough parking in lal dora areas.
4. Ghaziabad - best destination for small time investors and rental property. Expect good lift in prices in 2012 with major deliveries. Shops are also good investment here.
5. Bombay - avoid flats. Expect plateau to downward prices for 2012. Commercial RE in various locations are currently down and form the best bet for 2012 through to 2015. Old city locations might be the best followed by mulund, thane, Kalyan etc.
6. Pune - I think it will be down. But dont follow the RE scene there.
7.Bangalore, Chennai likely to be up in 2012 as rates are lowered (more linkage to IT firms).
8. Tier 2 and tier 3 towns should stay plateaued.
onomy:
Saturday, August 27, 2011
On the gold bubble
I personally dont like Tech Mahindra (or M and M) and RCOM. They have poor quality managements who tell more blatant lies on their balance sheet than other Indian companies (all of whom do lie to some extent). THere are better companies.
Re: Unitech, there is every risk that the comany will be wound up if someone other than Congress is in power. Same with DLF - so a future beyong 2014 depends on election results.
Re: Gold, current total value of Gold is about 9 trillion dollars. Assuming it becomes defacto gold standard, then it should represent about 10% of the total global wealth (currently 450 trillion) = 45 trillion. So gold will have to rise 5 times from current prices i.e from 2000$ to about 10,000$. If all assets have to be denominated in gold, it will have to rise to 100,000$ but obviously hard assets will remain.
But gold standard is never coming back. So one should sell much before that.
I agree with Sanjana's advice - having accumulated very little gold (like my 5%), it doesnt make sense to clean out the position just because of 2 bearish views on gold bubble. Ride the wave for some more time - but know to get out in time.
As I said, every asset is in bubble - a liquid bubble not an air bubble. The liquid is leaving one bubble and going into another bubble - like a tom and Jerry cartoon.
The 50-70 trillion dollars in deficit liquidity I talked about earlier can be easily extinguished if gold goes from 2000$ to 10,000$ - from 9 trillion to 45 trillion in value. Inflation to this level followed by a slow deflation over 30-40 years is the best way to drain the liquidity without harming anybody.
People who buy stocks and bonds are too financially savvy to be caught wrong footed.
Inducing the lay public into buying gold - especially illiquid bullion gold - is the best way to drain out the false money - allow this bubble to inflate, make a killing in the process - and leave the public holding the baby.
They could not do the same in stocks and bonds, because lay public dont hold stocks and bonds - those who hold are too smart and all know how to play the same game.
With real estate and gold, lay public which is more easily fooled into buying an inflated asset is involved - ideal situation to deflate the bubble.
If even this fails, then only general economic inflation of over 10% in developed countries can deflate this bubble. Obviously US govt would prefer to see gold, bought by Indians and Chinese, absorb the excess liquidity than see general inflation of all prices in their economy - which would bring great hardship to their own people.
One great gamble tried by the US was to have their living standards rise by having China and Japan sell them things - and then invest in US treasuries. WHile Japan has been a sucker in this, CHina has proved to be quite evasive - their 2 trillion in UST has been successfully released in Yuan into their own economy and had been more or less successfully absorbed, raising living standards of the Chinese.
India's living conditions are pathetic, making us poor. We should be careful as a country not to buy up a lot of inflated gold and see our wealth effectively drained out to support the living standards of USA and Europe. Which means, at some point, our RBI should sell its gold at the best price.
Individually, the same rule - ride the gold wave but exit at an opportune moment- and definitely much before 10,000$ (since that would represent that gold is holding the maximum of the bubble liquidity).
I would exit at 3000$ (by practiving the same exit strategy I outlined earlier)
Re: Unitech, there is every risk that the comany will be wound up if someone other than Congress is in power. Same with DLF - so a future beyong 2014 depends on election results.
Re: Gold, current total value of Gold is about 9 trillion dollars. Assuming it becomes defacto gold standard, then it should represent about 10% of the total global wealth (currently 450 trillion) = 45 trillion. So gold will have to rise 5 times from current prices i.e from 2000$ to about 10,000$. If all assets have to be denominated in gold, it will have to rise to 100,000$ but obviously hard assets will remain.
But gold standard is never coming back. So one should sell much before that.
I agree with Sanjana's advice - having accumulated very little gold (like my 5%), it doesnt make sense to clean out the position just because of 2 bearish views on gold bubble. Ride the wave for some more time - but know to get out in time.
As I said, every asset is in bubble - a liquid bubble not an air bubble. The liquid is leaving one bubble and going into another bubble - like a tom and Jerry cartoon.
The 50-70 trillion dollars in deficit liquidity I talked about earlier can be easily extinguished if gold goes from 2000$ to 10,000$ - from 9 trillion to 45 trillion in value. Inflation to this level followed by a slow deflation over 30-40 years is the best way to drain the liquidity without harming anybody.
People who buy stocks and bonds are too financially savvy to be caught wrong footed.
Inducing the lay public into buying gold - especially illiquid bullion gold - is the best way to drain out the false money - allow this bubble to inflate, make a killing in the process - and leave the public holding the baby.
They could not do the same in stocks and bonds, because lay public dont hold stocks and bonds - those who hold are too smart and all know how to play the same game.
With real estate and gold, lay public which is more easily fooled into buying an inflated asset is involved - ideal situation to deflate the bubble.
If even this fails, then only general economic inflation of over 10% in developed countries can deflate this bubble. Obviously US govt would prefer to see gold, bought by Indians and Chinese, absorb the excess liquidity than see general inflation of all prices in their economy - which would bring great hardship to their own people.
One great gamble tried by the US was to have their living standards rise by having China and Japan sell them things - and then invest in US treasuries. WHile Japan has been a sucker in this, CHina has proved to be quite evasive - their 2 trillion in UST has been successfully released in Yuan into their own economy and had been more or less successfully absorbed, raising living standards of the Chinese.
India's living conditions are pathetic, making us poor. We should be careful as a country not to buy up a lot of inflated gold and see our wealth effectively drained out to support the living standards of USA and Europe. Which means, at some point, our RBI should sell its gold at the best price.
Individually, the same rule - ride the gold wave but exit at an opportune moment- and definitely much before 10,000$ (since that would represent that gold is holding the maximum of the bubble liquidity).
I would exit at 3000$ (by practiving the same exit strategy I outlined earlier)
Friday, August 26, 2011
Extinguishing "mirage" money
Most current estimates put the total wealth of the globe around 450-500 trillion dollars. This wealth is being continuously increased by the GDP of the nations and extinguished by depreciation of the wealth assets.
Into this situation, from 2000 to 2011, there has been a wave of intangible asset creation, mispricing real assets. This includes derivatives, swaps, futures and options in stocks, bonds and commodities as well as PM like gold. Fuelled by Greenspan and Bernanke, this has caused confusion as to how much wealth the world really has. Since these paper assets have infinite loops and liquidity waves pushing up or down various assets in interlinked ways, it is difficult to exactly pinpoint total global wealth - just like the Heisenberg uncertainty principle, you just cannot know.
Probable estimate for this uncertain wealth is 50-70 trillion dollars i.e about 10-15% of total global wealth is totally indeterminate. Probably, all of this is just fairy gold - meant to vanish when the sun rises.
Question is, what is the asset which will depreciate in value enough to make this 70 trillion dollars vanish? No market is this big and 70 trillion is around slightly more than one year's global GDP. Obviously, multiple assets have to depreciate to achieve this depreciation of wealth.
Another way to put it is that people did a lot of work which was wasteful and did not create wealth (rise in living standard). WOrk was wasted and is now gone. Americans moved houses in a musical chair, without creating wealth addition. A lot of financial instruments created the illusion of wealth and were not backed by real assets and so the wealth had to vanish.
But since no market is big enough to absorb this extent of depreciation, what will fall? Whichever asset seems likely to fall, investors are fleeing and trying to hide in another asset less likely to fall.
The first asset to fall was house prices - but this was location specific and instead of absorbing the fall, it only shifted loss from the asset holder (buyer) to the banks. THe banks were reluctant to let their assets fall - rightly, it should have been AMerican and European banks which should have been allowed to fail. But they were not allowed to fail and were bailed out. Probable size of the bank bad loan size (US and Europe and global) is only around 5 trillion - only 10% of the actual short fall in wealth. SO it alone was also not enough - a recession in living standards was also needed to extinguish the fairy wealth - which would have been assured by letting the banks fail. But the US govt and fed did not do this - and passed the buck to other people to take the fall.
THe second asset to fall was global stocks. Total market size is only about 40 trillion and this market (if it halved in value) could absorb only about a third of the global shortfall.
The bank bailout had the paradoxical effect of making the stocks rebound - and so no wealth cound be extinguished - fairy wealth was re-created in the form of the 2009-10 stock bounce.
THe third asset to fall was the dollar. But there was no inflation in USA because of the recession - instead there was risk of deflation. Even now, when deflation has receeded, there is no real inflation in dollars.
So the falling dollar, instead of extinguishing the global wealth deficit by inflating out of the problem, has paradoxically caused sufficient inflation of all other assets - stocks, bonds and gold - to offset the attempted devaluation of the dollar. There is no sign of stagflation also.
SO the imaginary wealth is still floating from asset class to asset class, refusing to be extinguished.
Ultimately, it is imaginary and will be extinguished. Smart people know this and leave every asset class just before it starts to show signs of extinguishing wealth. To me it looks as if this will continue like a never ending game of ping pong. On each bounce, some of the imaginary wealth will die out, hurting some people, but the ball will continue to keep bouncing for years - thanks to the financial ingenuity and complexity created by the Wall Street pros.
Gold is no safe haven in this scenario - it is only one of the asset classes into which people temporarily flee, pushing up prices, until it starts to looks shaky - when people flee gold into some other asset. SO gold is only fools gold - true fairy gold.
The only thing a participant has to do in this game is to hold the ball while it is rising and pass it on to someone else before it falls. In this game, there is no fundamental analysis involved - assets rise and fall for reasons other than fundamentals. You cannot put the rules of cricket into this game of ping pong - you cannot put the rules of fundamental analysis into this game of money. Only technical analysis will help.
There are two ways to play this game - one is the short term game - hit the ball and run. Other is to catch the ball, ride out a few falls, and then let go just before a bigger or perhaps even the biggest bounce of all. Both games are equally dangerous.
You might buy an asset just before fall and then sustain losses - and be the patsy who extinguished some of the fairy wealth. You might buy and asset and keep holding it for long time waiting for it to rise - only to find that you missed the selling chance and now the price will only fall never to rise - and again become the patsy who extinguished more of the fairy wealth.
One option is to spend the money as quickly as possible on useless gadgets or whatever - and extinguish your wealth but get a bang for your buck. Nobody can beat the AMericans at this game - they have already spent the surplus wealth of next 20 years.
Indians instinctively do not do this.
Understanding the situation should help one make a wise choice.
Real estate in this scenario can also serve as an extinguisher of wealth. You can buy at a high price and be left holding an empty shell of an asset for years to see any gain - or you can buy and exit quicky, timing the market and making notional gains - letting another sucker carry the asset, but then - you have to keep playing. As long as the music of liquidity keeps playing, you have to keep dancing - if you stop dancing you are OUT - you have lost your money on a useless asset.
Gold, Real Estate, Stocks, Bonds - they are all the same - as long as the global liquidity of imaginary wealth keeps sloshing around.
Being prudent in this scenario- spending less, making systematic investments, asset allocation - all can turn out to be foolish in time, for no fault of yours. BEst is to do what the AMericans do - spend it today on whatever strikes your fancy.
Dont stop to think about tomorrow (paraphrasing Fleetwood Mac)
Into this situation, from 2000 to 2011, there has been a wave of intangible asset creation, mispricing real assets. This includes derivatives, swaps, futures and options in stocks, bonds and commodities as well as PM like gold. Fuelled by Greenspan and Bernanke, this has caused confusion as to how much wealth the world really has. Since these paper assets have infinite loops and liquidity waves pushing up or down various assets in interlinked ways, it is difficult to exactly pinpoint total global wealth - just like the Heisenberg uncertainty principle, you just cannot know.
Probable estimate for this uncertain wealth is 50-70 trillion dollars i.e about 10-15% of total global wealth is totally indeterminate. Probably, all of this is just fairy gold - meant to vanish when the sun rises.
Question is, what is the asset which will depreciate in value enough to make this 70 trillion dollars vanish? No market is this big and 70 trillion is around slightly more than one year's global GDP. Obviously, multiple assets have to depreciate to achieve this depreciation of wealth.
Another way to put it is that people did a lot of work which was wasteful and did not create wealth (rise in living standard). WOrk was wasted and is now gone. Americans moved houses in a musical chair, without creating wealth addition. A lot of financial instruments created the illusion of wealth and were not backed by real assets and so the wealth had to vanish.
But since no market is big enough to absorb this extent of depreciation, what will fall? Whichever asset seems likely to fall, investors are fleeing and trying to hide in another asset less likely to fall.
The first asset to fall was house prices - but this was location specific and instead of absorbing the fall, it only shifted loss from the asset holder (buyer) to the banks. THe banks were reluctant to let their assets fall - rightly, it should have been AMerican and European banks which should have been allowed to fail. But they were not allowed to fail and were bailed out. Probable size of the bank bad loan size (US and Europe and global) is only around 5 trillion - only 10% of the actual short fall in wealth. SO it alone was also not enough - a recession in living standards was also needed to extinguish the fairy wealth - which would have been assured by letting the banks fail. But the US govt and fed did not do this - and passed the buck to other people to take the fall.
THe second asset to fall was global stocks. Total market size is only about 40 trillion and this market (if it halved in value) could absorb only about a third of the global shortfall.
The bank bailout had the paradoxical effect of making the stocks rebound - and so no wealth cound be extinguished - fairy wealth was re-created in the form of the 2009-10 stock bounce.
THe third asset to fall was the dollar. But there was no inflation in USA because of the recession - instead there was risk of deflation. Even now, when deflation has receeded, there is no real inflation in dollars.
So the falling dollar, instead of extinguishing the global wealth deficit by inflating out of the problem, has paradoxically caused sufficient inflation of all other assets - stocks, bonds and gold - to offset the attempted devaluation of the dollar. There is no sign of stagflation also.
SO the imaginary wealth is still floating from asset class to asset class, refusing to be extinguished.
Ultimately, it is imaginary and will be extinguished. Smart people know this and leave every asset class just before it starts to show signs of extinguishing wealth. To me it looks as if this will continue like a never ending game of ping pong. On each bounce, some of the imaginary wealth will die out, hurting some people, but the ball will continue to keep bouncing for years - thanks to the financial ingenuity and complexity created by the Wall Street pros.
Gold is no safe haven in this scenario - it is only one of the asset classes into which people temporarily flee, pushing up prices, until it starts to looks shaky - when people flee gold into some other asset. SO gold is only fools gold - true fairy gold.
The only thing a participant has to do in this game is to hold the ball while it is rising and pass it on to someone else before it falls. In this game, there is no fundamental analysis involved - assets rise and fall for reasons other than fundamentals. You cannot put the rules of cricket into this game of ping pong - you cannot put the rules of fundamental analysis into this game of money. Only technical analysis will help.
There are two ways to play this game - one is the short term game - hit the ball and run. Other is to catch the ball, ride out a few falls, and then let go just before a bigger or perhaps even the biggest bounce of all. Both games are equally dangerous.
You might buy an asset just before fall and then sustain losses - and be the patsy who extinguished some of the fairy wealth. You might buy and asset and keep holding it for long time waiting for it to rise - only to find that you missed the selling chance and now the price will only fall never to rise - and again become the patsy who extinguished more of the fairy wealth.
One option is to spend the money as quickly as possible on useless gadgets or whatever - and extinguish your wealth but get a bang for your buck. Nobody can beat the AMericans at this game - they have already spent the surplus wealth of next 20 years.
Indians instinctively do not do this.
Understanding the situation should help one make a wise choice.
Real estate in this scenario can also serve as an extinguisher of wealth. You can buy at a high price and be left holding an empty shell of an asset for years to see any gain - or you can buy and exit quicky, timing the market and making notional gains - letting another sucker carry the asset, but then - you have to keep playing. As long as the music of liquidity keeps playing, you have to keep dancing - if you stop dancing you are OUT - you have lost your money on a useless asset.
Gold, Real Estate, Stocks, Bonds - they are all the same - as long as the global liquidity of imaginary wealth keeps sloshing around.
Being prudent in this scenario- spending less, making systematic investments, asset allocation - all can turn out to be foolish in time, for no fault of yours. BEst is to do what the AMericans do - spend it today on whatever strikes your fancy.
Dont stop to think about tomorrow (paraphrasing Fleetwood Mac)
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