Current Market Scenario!!!!
It is always said how fast the rise ,steeper is the fall ,but the question remains how far the fall in GOLD is justified Its matter of just few days it broke heart of Millions of Investors all round the globe. The big question is whether it will be able to regain that trust. U n till this fall all the research analyst round the world had a buy call now it’s completely opposite.
The Investment rule
When price are high Sell , Price is low Buy
When people are selling and one has confidence in the what is to be bought go ahead and buy vice versa
What are the reasons behind the steep Fall
·
Declining in the SPDR ETF Holdings (lowest since 2010)
· Uncertainty about US bond buying programme
· Mild Recovery in global equity markets
· Possibility of Cyprus raising funds by selling gold to raise funds
· Global Investors George Soros reducing their position in gold,
· Reducing Price forecast by institution Goldman sachs, Deutsche Bank
· Reduced investment demand owing to huge volatility
Economy Outlook
Industrial output data
India’s Industrial output rose in February , the second consecutive monthly increase ,giving rise to hopes that the economy on its revival and hit the bottom. The increase was glacial. Output from factories and mines was only 0.6% higher than February of the previous year,yet it managed to beat the expectations by over 2 % points. Industrial output has gone up by 2.5% in January .
Inflation
India is always affected by inflationary pressure, and has been one of the main factors road blocks in the growth of the Indian Economy. Where past one and a half year you will see that the prices of any commodity that is for consumption has gone up by Min 50% to 100% thus creating a lot of pressure on the middle income group as so called India is an agrarian economy .
There was a little to cheer about for the economist ,Finance Minister as the effects of the measures taken by the Govt and RBI will show in extended future IE Now ,The inflation data which is out ,consumer inflation dropped for the first time in six months to 10.4% against 10.9%.
Fundamentals and Its effects on the economy Inflation & Industrial data
As both the data came out are positive for the economy
Prices of the commodities and the goods which are consumed have come down slightly that shows economy is on its revival path. More the prices will come down more the expenditure by the Indian consumers, More the spending more will be the revenue generated by the Traders ,Business ,job will be created , Govt Income etc. Money will be circulating in the economy. As the inflation and industrial output is one of the factors which goes hand in hand with inflation shows that there has been pick up in the manufacturing activity this will lead to borrowings from the banks for WC requirement they in turn will give the goods produced to the consumers at better price. As all this leads to signaling Rate cuts in the interest rates.
Crash In the commodities prices
It was all heading south untill a big crash in all the commodities prices have reinstated the growth story in India. The major Imports of India are Oil, Technology, Gold all these three account for almost above 60% of the total import bill of the country.
In April itself there has been softening of the crude oil price which is quiet good for the Indian economy
Fundamentals
Crude oil is imported so the payment of it has to be made in the respective currencies so the Ruppee/$ rate is one of the important factors where the demand for $ increases so the value of the rupee decreases as more of imports happening . There is major outflow of the currency happens to the exporting countries. As but natural the price of the Brent crude & crude on NYMEX have come down drastically so the demand for $ has reduced there is a scope of rupee being appreciated as the appreciation happens the Current account Deficit of the country reduces.As well as the inflation within the country also reduces.
INR/$ Graph
Gold off late has been the talk of the world as the in last decade it is for the first time that gold has given a negative return and has left the investors in fix…
Gold Graph
GOLD LOAN BUSINESS IN INDIA
It is always said to be one of the safe investment scheme for an investor Muthooth & manappuram are the two big major players in the gold loan industry,IILF has also started lending against gold but now all the companies are trapped under their JUNGLE.
Why now lending against gold riskier?
Suppose IIFL has lended against Gold to Mr X and prices of the gold has crashed ,the question here arises as why will MR x repay the entire loan to get back his mortgage /Gold back .As the value has decreased there will be less eqgerness to repay the loan back.
The intense competition of recent years made many companies promise Loan to value ratio.The quantum of debt compared with the value of the precious metal used as collateral.There are few innovative methods where they have come up with by disregarding the making charges and the losses while making the ornament that amounts to 25 % extra on the total cost.
Example – If IIFL has lent Rs 75 against gold worth Rs 100 and the gold prices fall by 25%,then the company may lose out because of the dip in the value of the collateral.
Sovereign Bonds
There are reports suggesting that India may consider a sovereign bond issue asias third largest economy
Gold Stories that are running around
A shopkeeper who managed to get inside a showroom in Mumbai says the store resembled an over crowded long distance local train during peak hours. Another shopkeeper complained that jewelers had taken most off the interesting pieces out of the shelves claiming all the items are sold off.Probaly they are waiting for the prices of the gold to rebound. The jewelers are refusing to buy back gold even at the CMP. This shows how the uncertainty has creeped into market.
Indian Household Cheers!!!!!
The steep fall in gold prices have come in blessings for housewives who have been queing up before their neighbourhood jewellery stores, especially in South India.
Who have lost Money ??
· Retail Investrors
· High Net worth Individuals
· Punters
“The support of 29000 was being held since may 2012,” This coupled with the fact that the investor tends to buy on dips instead of selling on rallies resulted in their holdings on to long despite the trend having become bearish over past few months.”
Winners of the Crash
The arbitrageurs and those who had placed bearish bets.since future is a zero sum game, with the proportion of winners and losers being equal,arbitrageurs who buy and sell the same commodity across different months and those who take contrary bets between two exchanges,like MCX and comex,part of CME goup.
Current account Deficit
· All across India it’s a Diwali kind of atmosphere at all the jewelery shop ,A jweler who runs 80 retail store under the name Shubh jewelers says Its now the time to buy gold as it has come to this level almost after 3 yrs. This fall has brought blessing in disguise for India and Congress (UPA),If gold settles at current levels , our FY14 current account deficit forecast will come off 40 basis points to 3.9% of GDP, from 4.3%, as due to this more investments will take place land and real estate , where the returns seem to be looking up,and this will be a global phenomenon. Current account deficit had increased in recent months and this will be cooler for detraction of the same. At Brings A Smile Even In a Bleak Market we say it is a cycle of the economy
· Where the developed countries and now picking up pace ,
· Developing countries are showing a little slowdown ,
· Where the Equity markets are showing signs of revival,
· Commodities are showing down turn
At the end it’s the Money on which the world is revolving
Gold Holdings
As of December 2012 (Top 40 based on World Gold Council data)
| ||
Country/Organization
|
Gold
(tonnes) |
Gold's share
of national forex reserves (%) |
8,133.5
|
76%
| |
3,391.3
|
73%
| |
2,814.0
|
N.A.
| |
2,451.8
|
72%
| |
2,435.4
|
71%
| |
1,054.1
|
2%
| |
1,040.1
|
11%
| |
[11]976.9
|
9%
| |
765.2
|
3%
| |
612.5
|
60%
| |
557.7
|
10%
| |
502.1
|
33%
| |
423.6
|
6%
| |
382.5
|
90%
| |
]375.7
|
16%
| |
Conclusion
WE At Brings A Smile Eeven In A Bleak Market have following vies over the next 12 months period, Because of the Global meltdown of commodity prices and especially Gold and crude oil,the major importing counties will be benifitting in near future in account of Current account deficit. The SENSEX & NIFTY is not yet been discounted the fact there is so much correction happened and 40 basis pt net contraction. Nifty & sensex in next 2 weeks can rally. As the inflation is showing some signs of cooling off so poosibilty of further rate cut, but its just on papers the inflation has come down not in actual over the period of say 18 months the prices of consumption articles will come down provided the inflationary situation remains the same of improves further.political scenario will be one of the main factors which will decide the destiny of the Indian markets as well as foreign inflows in India. Offlate a lot of uncertainty has creeped in Govt is quiet unstable and that is why you see a lot of fluctuations in the market which is not a good sign for Indian Economy. Rupee/$ we still at Brings A Smile Even In A bleak Market Feels that Rupee has to strengthen further rather depreciating we will just go a little backward Rupee had fallen completely in 2012 prior to that it was quiet stable now Rupee will be stabling around 50 to 52 nad ther the revised decision can be taken. If we can increase our exports and some incentives can be provide by the government will just add to the party. If that happens it will only strengthen the place of UPA III in making. As a whole we have always been bullish on Indian story off late probably there are tough times but that’s the cyclical and have to face the music . In next 2015 to 2020 India should outperform the market probably now also can be the same as investment sentiment is improving in US so they tend to invest in riskier asset that is Equity. As a whole India will perform and we have been recommending few stocks and particular sectors one can look at .
For any
suggestion and feedback do write us will always be happy to reply
Signing off from Research desk of Brings A Smile Even In A Bleak Market
