Transcript of the Podcast
Hi this is your editor Arjun Parthasarathy speaking. The Friday podcast is a value add feature for the followers of Investors are Idiots.com. The brief podcast will select one topic for analysis and will be released every Friday.
This week’s topic is on “2013- The year of hope and fear for markets”
The year 2012 has ended and the year 2013 is beginning. What does the year 2013 hold for markets? Will the Sensex and Nifty trend up from current levels of 19400 and 5870 respectively, which are close to calendar 2012 highs and the highest levels seen since April 2011. Will the Indian Rupee (INR) strengthen from levels of Rs 54.90 to the US Dollar, which is off record lows of Rs 57 to the USD seen in mid 2012? Will bond yields trend down from current levels of 8.10% on the ten year benchmark bond, which is 10bps off from lows seen in mid 2012. Will gold prices fall further from levels of USD 1662/oz, which is down from highs of USD 1790/oz seen in October 2012?
Markets will hope for uptrend in equities, bond prices and the INR and will hope for fall in gold prices. However there is also fear in the market as uncertainties persist on the back of political issues, inflation, US Fiscal Cliff and Eurozone Debt Crisis. Markets will go into 2013 with hope and fear.
Hope- The Sensex and Nifty are closing 2012 at close to calendar year highs. FII’s have been driving the indices higher with investments of around USD 20 billion in equities in 2012. Markets will hope that FII flows continue in 2013 and that hope has good foundations with central banks of US, Eurozone and Japan following ultra loose monetary policy and flooding the system with cheap liquidity.
The INR is yet to reflect the optimism of FII ‘s on equity markets. Markets will hope that INR will trend higher in 2013 on the back of strong portfolio flows.
Bond yields have trended down by around 25bps in calendar 2012 and markets will hope that yields will fall further in 2013 on the back of RBI easing monetary policy and on the back of the government containing its fiscal deficit.
Gold prices are higher in 2012 but at USD 1662/oz prices are still well below highs of USD 1900/oz seen in 2011. Gold is seen as a flight to safety instrument and markets will hope that gold prices will stay down in 2013, as it is a signal for money to move into risk assets.
Fear- The markets have many factors to fear in 2013. One factor is mid term polls given the issues facing the current government including issues of corruption, law and order and infighting amongst allies. Inflation has been the bugbear of RBI with both wholesale price inflation and consumer price inflation refusing to trend down significantly despite monetary tightening. Fear of inflation could come true on hikes of prices of administered goods such as fuel and fertilizers. Fear of FII outflows is always there and if debt problems in the Eurozone deteriorate or if US cannot contain the “Fiscal Cliff”, the fear of FII outflows can turn out to be true.
We at Investors are Idiots.com believe that 2013 will be more a year of hope than a year of fear. Go ahead and invest with hope rather than with fear. However fear will always make you invest prudently and use the fear to make the right investments.
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