Diwali Update 2017
First of all wishing all of you a very happy Diwali. May God bless all of us with health, wealth, peace, prosperity, wisdom, strength and all that you desire.
What we see in the coming time. We see GDP and the economy continuing to struggle in the coming next one year, some of you may say that are we saying this because of GST? No it is regardless of GST rollout problems that are being faced in the business community. GST is only going to aggravate the situation as per my understanding of the cycles are concerned. We also see sharp cuts in earnings going forward and we will not be surprised to see a contraction in earnings in the next one year. Whatever earnings recovery people are talking about I don’t see that taking place at least in the near term. As far as real estate prices are concerned we are now entering a cycle which will see a major collapse in real estate prices. In certain parts of the country and especially in high valued apartments and complex we have already started to see sharp price cuts subject to fast payments and we still see that going forward if you can make a fast payment for a property getting 30-50 percent cheaper will not be a problem in most markets and this will hold true especially for premium residential and commercial properties. As far as in general business are also concerned we see a major contraction in business so extreme caution is advised.
Now some of you may say that all these factors are present since sometime but yet stock markets have not reacted to any of the above news flow. Yes I am well aware of that fact but there is a differentiation that needs to be made one that of the economy and earnings and that of the stock market prices both are being ruled and also currently controlled by some different force so what the market does and where prices go in the near term that’s a different ball game altogether but from a macro economic stand point we don’t see much support for the markets and once again remember that having said that does not mean markets have to react immediately on any set of bad news that may come out on the news flow side.
What could go wrong for India in the near term? (There are many issues at present which I have not discussed but the crude oil problem which could come is not even under consideration by most people in the market and hence I thought of highlighting it) Crude Oil is nearing a breakout Crude Oil could very easily head towards 68 or 78 or 82 so if this breakout in crude oil does happen that will be extremely detrimental to the Indian economy. Further on account of exports falling month on month and CAD going out of hand that will further put pressure on INR and not to forget the rates going up in the world that will also see a lot of money leaving the country which will put pressure on the currency.
So a combination of growth slowdown + Extreme high valuations + NPA’s rising + INR depreciating + Oil Import bill zooming higher + negative credit growth + inflation starting to move higher is not good for equity but most of these have been present for sometime as I have said so when will the market take note of all of these factors and start adjusting for these factors Or will earnings pick up and make the market look cheap
So what am I doing and where do I see opportunity. I see a good opportunity in silver and yes some theme based multi baggers which we will enter when the right time comes but the new set of multi baggers will make tremendous money because no one will understand why those stocks are rising till the time patents don’t get approved and till the time management does not start actively talking about the massive innovation that they have come up with. Massive money can be made there but timing of the entry will be crucial and the good thing is that we expect consistent growth from those set of companies for the next 12-15 years at least of not more so we will have a consistent CAGR YoY and that will create massive wealth for us and all our clients.
Many of you have been asking me when the crash is going to happen. Many have also been asking me will we see your previously predicted target of 5872. Many of you have been asking me why all world markets are rallying despite bad news coming in from all the sides. Many have also been asking me is this the mother of all bull markets that you have been talking about and is Nifty heading for 23800 as you have predicted. Well there are many more questions that everyone has been asking me and I have given answers to most questions but some of the answers you can figure out yourself.
As you all know that current set of valuations are one of the highest we have had in history we are now almost at the same valuation as that of Jan 2008 and many of the people over the weekend have said that “Valuations only have never been a factor for the markets to correct” but the statistical fact remains that whenever valuations have reached over 24 they always have gone back below 14. Whatever has been the news flow markets have always gone back below to the 14 PE mark. So we take the case of 2000 then it was a dot com bubble that went off, In case of 2008 it was the housing crisis and similarly in case of 2017 it will be some other news flow or rather the news flow that is already present will get the markets to fall and crash.
Now let us for one minute consider some time cycles which are at play. 1839 major depression and then it took 6 years for the economy and the markets to stabilize then came 1929 another great depression and once again we did see economy and markets took 5 years to recover from that. Do you see some similarity in these years? If not please take a calculator and sit down and see for yourself. So this is one cycle that will play out. Now let us independently look at another cycle. These historically have been the best times to buy 1903,1923,1942,1962,1981,2001 and then ???? So this also shows that major cycle low is pending. Now let us look at another time cycle rule “9 is the highest of all numbers, 9th is the strongest of the bull. The final bull campaign culminates here” “ The market generally tops out between —- and ——“ (Please do your home work). “ Then the next year is a massive ……..” Again some of you may say well the low prices will come only few years later but when we have studied all the previous tops there have been certain characteristics of the topping process we have 21 such parameters which indicate on a day to day basis that market has topped or not and it will be prudent now to follow those indicators and not having to follow the major cycles as there is always minor variations based on some planets optical orbits which actually control the moves. One of the 21 parameters I have mentioned above. Another of the 21 parameters is public participation. Many people are saying that there is no public euphoria but I beg to differ. This time the public is participating through SIP’s and other instruments but the SIP money and the domestic fund flows are a clear sign of public participation it may not be direct but there is more than ample public participation in the markets. The IPO frenzy is another of our indicators and as I have mentioned in my previous post the valuations at which these companies are floating their IPO’s and the kind of public participation its receiving is another parameter. So the topping has been seen when 80% of the parameters have been meet and as of now we have many parameters which have completed the topping signal the question is how many more to go? Well that we will not disclose here and now. You can do your own work and see.
Now some of the people who have been saying that liquidity is so high and the SIP money is so high that markets will not fall as buying will come in at every level. Once again let us go back to history and see what has happened. In 2008 in the US markets there was similar liquidity chasing equities what happened we all know. In the year 2000 there was similar liquidity chasing equities we all know what happened. The bottom line has been equities as an asset class has done well over the years only when there has been consistent earnings growth but as of now we are heading now into a period of earnings contraction. So we have a combination of high valuations and contracting earnings which could lead us to an extended period of recovery as we have seen in the previous two cases mentioned above also. Further it becomes even more dangerous because Central Banks and Governments around the world have used everything and every tool that was available to them since 2008 to avoid such a situation the problem is that they have not been able to avoid the problem they have only been able to delay the problem and now it is a ticking time boom and they have no ammunition remaining with them so don’t expect any kind of a QE program etc from any of the worlds central banks and that is where it leads us to the currency war because to my mind I can only see that all central banks will start devaluating their own currency in order to boost exports which they will think is the only way out. Where will this leave some of the Indian companies that have dollar loans well you can ponder over it.
Part of what we mentioned to our clients in Diwali Update
I have forgotten to mention an important point. Last year I have mentioned that there will be breakthrough in cancer treatment and that has happened. Now the current astro cycle will favour massive unlocking of knowledge due to Jupiter transit in Libra. We will see massive new breakthrough in even some more critical illness treatment or something that concerns body fluids. From a market perspective I was wondering that inspite of such negative news in public domain yet the market was holding and that was due to Jupiter giving knowledge to everyone and telling them look markets are at dangerous so Jupiter was being responsible for making the news public and making the public aware that valuations are high and so many problems are plaguing the economy but as I have said that the actuall fall of prices is controlled by someone else and not Jupiter. He was just passing in the knowledge to people and making them aware of the overall situation. Bottom line is that massive breakthrough will be seen in multiple areas God bless and enjoy your weekend.
Good Trading To You!