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Commentary

Diwali Wishes and Predictions 2012

Happy Diwali, folks. It’s 2012, and this is the sixth series of the Diwali posts when I analyze my last year, and the last predictions and laugh my head off.

What happened in the last year

1. I moved to Bangalore. The weather here is great. The traffic sucks eggs. I started a full time consulting gig with a friend’s company and learnt that corporate life is very different from, well, life. This is new to me and has reduced my blogging and investment research substantially. (My apologies)

2. The market went nuts in the year, but didn’t really break out. The recent rally in September came on the back of a hope that the government is waking up. But it doesn’t look like it’s holding; the problems are compounded by repeated revelations of corruption in high offices.

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3. Broad economic indicators have worsened. Inflation is sticky. Growth has come down to the 5% levels. Bank credit growth is slowing. CRR has been cut substantially to help bank bottomlines. Real estate continues to skyrocket.

4. Internationally, markets seem to have stabilized, but only on the back of unlimited monetary easing by both the Fed and the ECB. However the situation in Greece seems un-rescuable, and Spain gets increasingly worse. Obama got re-elected, which raises fears about the "fiscal cliff" in January when tax cuts will expire and they will cut spending to curtail the deficit.

My predictions of the year gone by

In my last post I’d spoken of a few things that would come.

Prices will fluctuate. I think I’ll get that right.

+1 on that front, at least. (Phew)

I doubt we see the end of the crisis in Europe in the near term. There will be some sudden disasters and perhaps tiny elements of relief when everyone decides to do something, then more disasters and so on. India will be impacted, largely when it becomes contagion; but given the ability of our leaders to kick the can down the road, I can’t say if it will happen the next year. But there will be serious strains within the Euro.

So I’m going to claim this one because I weaseled out of actually saying what would happen.

Europe did see some drama, and there was relief when the ECB said boss, I will buy anything even if it is toilet paper. There was no contagion. And strains within the Euro persist, as they will forever, largely because they secretly hate each other.

+1.

Inflation and then high rates will hurt Indian businesses, and we will see some big, but not crippling, defaults.

DCHL defaulted. Suzlon has kinda sorta defaulted. Kingfisher has also defaulted. Nothing has crippled the system yet.

So +1.

Almost as a consequence the Indian stock market will be choppy. I think banks will fall big time. I think much of the commodity space will come down, and if there’s a big crisis in Europe, everything else. Volumes will remain low. (But in the meantime, there will be fabulous 10-15% rallies in the index). I think the operating range is 4400 to 5800, which is so wide a range it’s silly to even call it that. Maybe I should take that back.

Oh boy. The market was exactly in that range. Volumes were low. There were fabulous rallies. Commodities remained stable.

But banks did not fall big time.

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So I’ll take no points.

The Jan Lok Pal bill will come back and take more of our mindspace. If a JLP is created, there will be one spectacular case or so. Then it’ll fizzle out (but that could take a few years). In the meanwhile, markets will react violently if the spectacular case relates to a publicly traded company.

Haha. -1.

The US will first do well. Then after about three quarters of doing well, wonder why it’s not recovering. Obama has an election to fight and the battle will involve taking sides, initially, against wall street.

We saw Raj Rajarathnam and Rajat Gupta go to jail. Obama’s battle seemed to be against the rich (which Wall Street typically represents) We also see the US faltering, in a way, now. I think this prediction might just come true, though it’s not entirely apparent. So let me just take a +1 now.

The macro will trump the micro – that means our information sources will not concentrate on stocks, they will concentrate on large problems – like GDP, or Europe or China or the Dollar or such. In doing so, I will miss many moves on great stocks. (I hope I’m wrong)

I did miss the biggest moves. MCX, which went down to 900, went all the way to 1,600 in a couple months and I missed it. SKSMICRO, which doubled in a few months, was on my radar; missed the move entirely. I might blame it on the job, but that is just an excuse.

The macro did trump the micro. There was QE3, there was ECB openness, there were Repo cuts and CRR cuts, there were issues with government action, all of which impacted markets. Heck, I even gave a presentation at a conference about the macro impact.

So +1.

I think I won. But it doesn’t change anything because none of these predictions matter in terms of making real trades.

Predictions for the next year

  • Defaults and slowing credit growth will hurt bank profits. I believe it will impact bank stocks as well, but after seeing violent reactions such as the Fed’s QEs or the ECB/JCB action, I can’t say that the RBI won’t jump to benefit its beloved banks (rather than encouraging new banks and letting the old ones go)
  • I’m going on a lark here. Indian stock markets will crash. We might make an intermediate high (say 6,300+ on the Nifty) but I think we crash at some time next year. The trigger, this time, is likely to be internal – such as another silly government program, or large deficits, or the dollar-rupee equation hurting big time. (As compared to external such as a Greek default)
  • Gold will hit new highs.
  • Some stocks will go up more than 100% in the year. These, I hope, I will catch for at least part of the way.
  • India will see job losses in sectors like IT and telecom and BPO and such. The impact will be felt beyond a year, perhaps, but the ball will start to roll and create both political and economic complications.
  • The US will get over the "fiscal cliff" but there will be other issues that continue to plague it, with political uncertaintly and the Western economies will start creating walls to keep jobs within their countries, to work through recessions.
  • At a personal level, I’ll figure out things on the work front. I might transition into full time employment. Or, I might get back into creating a startup in the financial space again. A lot depends on how secure I can make my family’s future, a position I intend to address in the next 12 months.
  • And finally, I’ll only buy stocks or short them after appropriate research. The last year has been very very indisciplined. More details on the site as things get clearer.

Hope you had a great day!

Earlier Diwali Posts:

  • prabee says:

    Happy Diwali.
    Congrats on getting most of it right for the past year.
    Now i hope ,since you succeeded last year ,you fail the prediction next year :).
    I don’t wanna lose my job 🙂 and at same time see market crash. It might be good if market crashes but i with hold my job

  • Srikanth says:

    Deepak,
    Don’t much care how your other predictions turn out, but hope your personal prediction goes super better than expected! 🙂 Have a good year ahead!
    Srikanth

  • fubar says:

    Let me make my own prediction based upon yours:
    The market will go to 6300-6700 and then it will correct not more than 20% from there. After a 40-50% rally from 4500-4700, I would say that will be a healthy correction even from the technical aspect.
    Now that is the boring part. The interesting part is that people who are not buying now in the 5500-5800 range will see market go to 6000+ and then panic buy. And when it will fall 10-20% from 6300-6700 they will panic again. The fence-sitters will meanwhile keep dreaming of a deeper correction and miss the next rally too.
    So keeping the prediction game aside, my suggestion to everyone is to work on strategy. Invest a significant portion now and keep investing over the next year. May be take off some bets if the index moves to say 6500 and increase allocation if it goes closer to 5000. But do not just keep waiting for a crash with 100% in cash. Remember, no one can predict the future.

  • DJ says:

    Happy Diwali!!
    2 and 5 are interesting points, although aren’t they mutually exclusive? If there is a crash, the rupee probably tanks, which makes IT jobs more favorable to the outsourcers.

  • IsItPossible says:

    To add to your predictions:
    >>>>” India will see job losses in sectors like IT and telecom and BPO and such…”
    Due to massive layoffs, in Finance as well as IT sector, housing bubble in major cities is likely to burst. All this will come as a surprise as people will NOT be ready to accept the fact that housing prices can ever go down ONLY to realize that they are paying EMI on original mortgage.
    Now the timing part of this happening: Step by step
    1. First global economic slowdown, rather start of global recession possibly next year
    2. Government scandals and more political uncertainty in India
    3. Euro crisis deepens paving the wave of lay-offs and gloomy days in job market
    4. Now we shall see the pinch of housing burst, credit will get locked up
    5. RECESSION declared, if NOT then very poor growth likely
    Time period: 2013-2016 (things don’t change in a night and requires lot of pieces to fall in place)
    Start of Next BULL market:
    Most likely from 2016-2018
    How can we predict the timing like this? Based on historical data of Dow Jones (18-20 year bear cycle)
    Does it mean put your money under bed? Does not matter, inflation will eat it, need to find right investment at right time, timing matters.
    Is gold a good investment in this times of crisis? You would think so, Isn’t it!!! Initially for 1st 1-2 years YES but then BEWARE, it could drop like a meteor falling from the sky.
    Whats positive about all this?
    1. Hardships/Recession will enable mass population to think about their political leaders and most like next government will be more accountable or willing to do something good for country and masses
    2. Once you hit rock bottom, the ONLY way to go is UP
    3. India’s young population did not get a chance to experience a full blown recession, sometimes unless u go thru it u do not realize the impact of one and cannot appreciate economic growth
    4. Black money needs to get flushed and recession does it well, however middle class gets hurt big time 🙁

  • Roshan says:

    Great piece of information.
    Very well summarised the year gone by.
    Belated Diwlai Wishes to you !!!

  • Kuldhir Singh Bhati says:

    I love reading your posts. I started investing in stocks two years back and i am loving it. Although i do not put huge amount in share market and hence my profits are also very small but you derive a different kind of satisfaction when you see your script doubling in a period of half a year (jet airways, united spirits, ifci) !! Although i sold portions of holding at every 20% or so and could not get maximum profits out of it but i had lot of fun in this kind of game. What is your view about gold? Can you please write an article on your opinion about gold.