Nifty has been moving perfectly along expected lines however it is very important to keep a watch on other instruments like Crude Oil also while most people are enjoying the current up move in the markets which was expected post the Gujarat elections many have not expected crude oil to behave in the manner it has been and headwinds continue to grow for India because of rising crude oil prices. Crude Oil has been consistently moving higher and rising Crude Oil prices has been a problem for India for the past few months and will continue to be for some time and that is because Crude Oil has been making consistent higher tops and higher bottoms and when the structure is as clear then the trend will continue to be up. Regular readers of this website are well aware that we had mentioned a target price of 68-72 for Crude Oil long back and yes we still continue to hold that view in fact we could see some more upside than our targets which we have mentioned but for now it is a ticking time bomb for the Indian economy, markets have been ignoring the warning signs from crude oil and with each passing day crude oil prices are moving higher and this does not argue well for the fiscal deficit, Inflation or the economy. So what effect will rising crude oil have in the near term? The first near term problem will be Inflation will start moving higher and rising inflation means that RBI will be forced to start raising rates upward. Now not many people in the market are expecting RBI to start a rate hike cycle and as of now the general consensus in the market is that another 0.25 bps rate cut is possible but if inflation numbers continue to surprise on the upside then RBI will not have any choice but to start increasing rates as opposed to cutting rates which most market participants are expecting RBI to do. Also the Indian Bond yields have been heading higher over the past few weeks and as of today were trading at 7.33 which are indicating of higher interest rates in the coming time but it is not RBI alone raising rates that could be a problem FED also is expected to raise rates throughout the year so the entire rally that has been fuelled by liquidity that important ingredient will start rolling back.
So keep in mind that crude oil for India was a problem at 52 then it was a problem at 55 and it is a problem for India at 62 but till now stock markets have been ignoring the impact of crude oil moving higher but that does not mean that markets will keep ignoring the crude oil problem for much longer because the more time the markets keep ignoring them the bigger the problem it will end up creating. Secondly the rising inflation world over could force central banks to move rates higher much more faster than most of the market participants are expecting them and that includes the RBI the FED and rolling back of cheap money by EU zone and BOJ. Thirdly and the most important is that markets world over are not cheap and are trading at historic high valuations and in our analysis of stock markets we have not seen anyone make money in such high valuations by investing be it SIP system, PMS system or any other investment system. In the recorded history of 200 years each and every time investors have lost money when stocks have been bought or invested at such steep valuations and the resultant outcome of such asset bubbles has always been that most investors get stuck at higher prices. This is what history has shown us and I am merely producing facts. There are much more severe headwinds if we look at time cycles and other important astrological occurrences but that does not imply the markets will adjust immediately it may or may not take some more time for all these adjustments to start playing out but keep in mind when it does start playing out and eventually it surely will that will be the time to make good money.
Valuations continue to be extremely high and as of 5th Jan 2018 the print on NSE website is showing 26.99, even in Jan 2008 on a closing basis this was the very same valuation that markets reversed very sharply from and I do not think this time also it will be much different, keep in mind that only minor variations can take place but overall this is it and I do not see any multiple expansion from current valuations it is that simple either earnings recover at 30 percent cagr for the next 3 years or we are looking at economic disaster waiting to happen and I hold my view that not many people alive would have seen this kind of a economic disaster and I say this because this time there is no ammunition remaining with the central banks of the world, the FED, BOJ, EU zone are not in a position to print anymore because there simply is no more room to print. Once again I am saying a very important thing History repeats itself and future is nothing but a repeat of the past. In 200 years recorded history markets are currently at most expensive valuations ever and in a low growth environment I do not think that such hefty valuations are sustainable. Many investors are assuming that earnings will recover and hence these valuations will become cheap or even may be reasonable but I don’t think that even if earnings recover even then this valuation is going to be sustainable simply because we have almost priced in growth and earnings recovery much ahead of time. Keep in mind that no one in recorded history has made money by buying stocks at such valuations.
So what could turn the tide is the next big question? Most people are talking about SIP money etc supporting the markets but we see RBI rate hike cycle starting due to world vide inflation starting to pick up so all this cheap money that has been going around will force commodity prices higher like we are currently seeing in Gold and Crude Oil and hence inflation will start to pick up and that in turn will force central banks to raise rates much faster than anticipated.
From an astrological stand point currently we are in a very important time band that has very high recurrence with major tops being formed the time band extends till end of this week and it will be very dangerous to hold long positions. Yes from a trading stand point we do not have any shorts for now but at the same time this is not the area to be long nor is this the area to look at buying the dips like most people are suggesting. The important point to watch out is that if and where does the reversal signal come Can it come 200 points higher sure it can or can it come at current prices sure it can or can it have some sort of a blow off rally in the coming week sure it can but from a tactical stand point it is important to look for that reversal because post that reversal we could see the start of a very powerful cycle which coincidentally is aligning itself to major cycle topping zone but for now we must wait till we get that signal and once that signal is confirmed then and only then can we sell so wait for that to come. I will keep updating live to our clients as to when and what to do and keep in mind that even in such an environment we have some investment ideas that will move regardless of the markets and they don’t belong to the sugar sector but will really give superb returns over the next 1-2 years as and when the time comes I will keep updating them.
Good Trading To You!