Investment Shastra

Technical Outlook: Currency, Equity & Gold

With lots of trading activity happening in various financial and trading instruments, investors might be wondering about where to invest their surplus income i.e. savings. While fundamental analysis is the way to go in identifying such investments; technical analysis might just aid you in taking those decisions.

So, let’s have a look at what technicals have to say about the Indian currency, Nifty and the most favoured metal of all time – Gold!

Currency

A breakout is seen on USDINR at 54 levels after about 10 years of consolidation. During this phase of consolidation from 2002 to 2012, we have seen gold rallying from close to $250 to above $1,900. As per inter-market analysis, a rising Dollar is bearish for the commodities, especially gold. Now that the gold has made a top at $1,900 and is being in midst of a downtrend, I believe that the USDINR may continue to rally and probably make new highs. The inflation differentials between India and USA will further take a toll on the rupee. Dollar Index itself seems to be bottoming at 77-80 levels. Further, the stock market internals reiterate our view on USDINR and both are in sync.  Those companies and sector, like Pharma and IT that benefit from a falling rupee, are the leaders of the current rally in the stock market. Owning to the above, I believe that USDINR has a base at 58-59 levels and don’t expect it to go below 58-59 levels. On the upsides, a fresh high in USDINR above 70 levels cannot be ruled out in 2014.

Equity

As far as stock market is concerned, we may see a repetition of Oct 1998 – Feb 2000 scenario, where Nifty moved more than double from 800 to 1800 very swiftly.

The current scenario and sentiments are very much similar to what was there, at that time. Just the vehicle is different at the moment.

  •  At that time, it was just less than 7 years of consolidation of from 1992, 1993, 1994, 1995, 1996, 1997 and Jan-Oct 1998.  This time, already 6 years of consolidation has been done (So time wise it is similar).
  •  IT & FMCG Sectors were the leaders in that rally, and so is the case this time too (Market Internals are similar).
  •  Weak Central government in the form of I.K. Gujral and Deve Gowda United Front Governments supported by Congress was there at that time. This time it is corruption and policy paralysis (Political backdrop & the negative sentiment is the same in the air).
  •  Election uncertainties and then Decisive Victory by BJP led by stalwart Atal Bihari Vajpayee. Although the outcome of this event is yet to come, our projection is that we could see a stable government probably headed by Narendra Modi. Everything is well for the BJP.

As Far as fundamentals are concerned, everything was well when market peaked in 2008, as in terms of GDP, FII inflows, Currency. If everything was well market shouldn’t have peaked then. But it did. I feel that this time markets have already factored all the negatives in the price.

More importantly, Indian stock market moves into an 8 year cycle, i.e. its makes a top and new high after every 8 years. The past tops were in 1992, 2000 and 2008. In most likelihood, I believe this cycle should continue and markets should rally hereon and a show a new high in 2016, which should take Nifty and Sensex to 10,000 levels and 35,000, respectively, by 1st quarter of 2016.

Gold

I believe that the 10 years’ Bull run in the gold from 2001 to 2011 was over in 2011-2012 itself and now the gold is under the control of bears. Previous major Bull run in the gold was in the 1970’s, which was also for a similar time frame of 10-11 years. Gold, in USD terms, is now behaving in lower top-lower bottom fashion, which can probably take it to 3 digits i.e. below $1,000.

The monthly RSI has moved below 50 levels for the first time in last 10 years, further suggesting that the Bull run in the gold could be over and it could be headed further south.

The chart has also given an upward sloping rising trend line breakdown, which was in force since 2005, targets of which suggests 1050 levels.

So to sum it up, after years of stupendous rally in hard assets and under-performance in paper assets, the tide may soon turn and paper assets like Equities can deliver returns more than hard assets like Property and Gold.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to MoneyWorks4me team or website. This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/ies. The person should use his/her own judgment while taking investment decisions.

 

Ankit Tikmany - Team MoneyWorks4me

7 comments

  • I am agree with the view in equity but I dont agree in Gold. Gold will not go below 1000 $. As it is scare commodity. Unlike $ gold cannot be printed & as declared recently $ printing will continue so it is important vehicle to hedge. One basic factor. Gold is mined & gold mines are going deeper & deeper. No new mines are discovered so basic cost of mining are going up & at present it is arround 1200 $ so I dont think it will go below 1000 $

    • Weather any 1 agrees or not value of Gold is not determined by all fundamentals but market participants positions. There still too much of longs in there & till all thease’r pushed out Gold will continue fall. Market always go against the perceptions or positions of crowd & till date every 1 knows whats the position of crowd is there.Further to add ur analysis I read Gold reaching 1st 1033-50$ & then move to 775-725 region.

      • I agree with you Mr. P S Thakur. Gold could reach 725-775 region also but that would take atleast couple of more years atleast and it’s only possible if Dollar Index breaches 90 levels

    • Dr. Ketan. Thanks for spending time out to read our stuff. The view mentioned in this blog was purely technical. Fundamentals and Technicals are 2 totally different school of thoughts, the oil and water of investing. The technical charts suggests gold could not be a good investment avenue.

  • As far as equities they have still long way to go up but of course people chasing penny stocks will again loose out. Qualities will perform only & as a retail investors we should stick to that only.

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