2010…what’s likely to Go UP and what’s likely to Go DOWN….will help you in rebalancing your Portfolio

This is my synopsis,deliberately devoid of too many statistics that support my view, on what’s likely to go UP and DOWN in 2010….This should help you form a view on Asset Allocation when rebalancing your Portfolio

UP          

OIL….from US $ 80 /barrel to US $ 110/barrel…..will cross and stay above US $ 150/barrel inside three years….not good for Importing India and it’s battle with reducing the Fiscal Deficit and Government Borrowings….Russia,which supplies 13% of the World’s Oil, threatening to close the Belarus route for Supplies to Europe,the volatile US-Iran situation,demand picking up and difficulty in maintaining 94 million barrels a day World Output would all lead to increasing the Price of Oil.  

GOLD…..was bang on target past two years (check my blog for earlier Gold insights)…see further upmove to US $ 1250/oz this year as USA tackles rising record Deficits and Low Interest rates….and much more in the long term as we approach US $ 3000/oz and then even US $ 5000/oz in the next decade…with USA doubling it’s monetary base in 2009 and expected to increase it’s deficit,currently at US $ 1.4 Trillion,by atleast another US $ 7 trillion in the next decade,Gold will remain on a firm uptrend in the coming decade 

METALS….as long as China and India continue to record high growth rates and a West Recovery gathers momentum,metals will see upmoves as will mineral resources like Iron Ore that feeds Steel

AGRI COMMODITIES….Ouch ! you name it !…all commodities are entering the ozone layer !…Sugar,Tea,Grains,Pulses….Food Inflation has eaten away wages and salaries in India…suddenly in 2009, Indian households were grappling with a surge of 50% in grocery bills on same quantities…Ouch !…..Don’t expect 2010 to bring any relief…so expect Sugar and Tea Producing Companies to record Non linear growth in Profits in 2010…Such Listed Companies have already recorded fantastic highs and will continue toperform strongly on the bourses in 2010 as profits are certain and visible    

INDIAN RUPEE v/s US DOLLAR….The US Dollar is rebounding and made to look strong by a weak Euro…However the Rupee and the Yuan will strengthen against the US Dollar as India will yet again record strong Inflows of over US $ 20 Billion and China continues to buy more Gold and move more of it’s US $ Two  Trillion reserves away from the US Dollar this year…The Rupee should close FY 10 in March this year at close to Rs 44 to the Dollar…It’s already reacted by over a percent to below Rs 46 in the first week in 2010….does not augur too well for Indian Exports,already hit by the recession in the West…and ofcourse the competitiveness of IT companies too will be impacted 

INDIAN EQUITIES….It great to be an Indian !…..India recovered brilliantly in 2009 and remains truly the best positioned in 2010 to move up from current Sensex Levels of 17500 as Forward Macro Valuations are fair ( 16 times FY 11 Sensex EPS) and Record FII Inflows, Domestic Consumption and Infrastructure Spending Stories remain intact….In fact I reiterate there is no better and compelling Investment Destination than India and FIIs,no matter what they state,will have litlle option but to continue to come to India in a big way…….  Selectively, on micro valuations,the returns would be more compelling…..Expect the Quantum of Primary paper through PSU Disinvestments and other IPOs to  be high…this could be a short term dampener for the secondary market….other risks remain rising Food Inflation and Fiscal Deficits…..USA is just about holding up…but record Unemplyoment Rates and Excessive Currency Printing are worrying……and the next bout of Housing and even Commercial Estate Slump seems imminent….Rising Record Deficits and National Debt and the dangerous practice of resorting to increasing printing of fresh currency dollar notes to fund the recovery and the deficit will inevitably lead to an inflationary spiral….The eventually weakening Dollar,the moving away from Petro Dollar Trade,China buying less Dollars will force US Interest rates to rise in the future from near zero levels right now…..China is moving full steam ahead as if 2008 never happened…Prices of Stocks and Real Estate have rebounded with vigour in 2009,doubling from 2008 end lows…yet there is some whiff of danger…and a true fear of an asset bubble formation in a few years ahead…so be a bit wary of China  

INFLATION RATE…..It’s rising in India and should close out March 2010 and the Financial Year FY 10 at 7%…Now that’s the current yeild too….so what’s going to be your real rate of return !?..closer to zero !

INTEREST RATE…..Has an upward bias due to inflationary pressures…however the adequate current liquidity and slow credit offtake will delay any possible immediate upward movement in the Interest Rate…in any case 2010 may see just a 1% to 1.5% move up in the Interest rate in India,keeping it yet in single digits

CORPORATE EARNINGS…..Clearly there is a recovered momentum here and one can expect a 15% to 20% Earnings growth in FY 11 in the Sensex 30 Companies…a sensitive barometer for Corporate India…The new GST and Direct Tax Code Implementation would be significant Game Changers

GDP GROWTH RATE…..Our FM,Pranab Mukherjee, played Santa Claus a fortnight ago and declared that despite the Drought in 2009,India will achieve a GDP Growth Rate of 7.75% this year and which is likely to move upwards to 9% next year….Sensex took the cue and surged…Spoilers could be rising Oil Prices,unfavourable geo-political situations,Government Borrowings and the Fiscal Defict continuing to remain High….also keep a watch on China’s Economy…any red flags should serve as a warning to India too  

DOWN   

LONG TERM US TREASURY BONDS……GET OUT OF THESE BONDS or you’ll be staring at a Capital loss…Interest rates are poised to move up and rising yeilds and a weakening Dollar will drop Bond Prices….In India,rising Food Inflation may just force RBI to raise CRR by half a percent at month end January….However the comfortable liquidity and a slow credit offtake may not put any immediate pressure to raise Interest rates….Investors are waiting for Interest rates to move up in India before committing to Long Term Debt Allocation this year    

DOLLAR AND THE EURO against Major World Currencies…….USA and Europe continue to grapple with recession….recovery will be slow and painful and will take several years….The Common Currency Concept of EURO is being severely tested and questioned….Sovereign Debt Defaults are likely….Italy,Greece,Spain,Portugal and Ireland are all in vulnerable positions….The Growth and Stability Pact of the European Union prescribes that Deficit should not exceed 3% of GDP and Government Debt should not exceed 60% of GDP…countries mentioned above are on course to violate both these important criteria in 2010…The Euro will get orphaned as Nationalism and Protectionism will surface…no other stronger European Country,like Germany will come to the rescue to bailout any country or the Euro…..The US Dollar will continue to weaken as US deficit surges further from the current US $ 1.4 Trillion,China reduces lending and investing in US Treasuries and apportions a lower ratio of it’s US $ Two Trillion FX reserves to the US Dollar…forcing USA to print more currency to fund the deficit….will lead to high and possibly hyper inflation in years ahead…so as an Indian if you want to benefit from this inevitable decline of the US Dollar and the Euro,simply Borrow in these currencies,but don’t create any assets in these by switching from other stronger currencies!  

US EQUITIES……As someone quipped ” Wall Street is Dead and you’re dancing on it’s Grave”

US HOUSING….. an estimated 3.9 million homes went into foreclosure in 2009…Expect a similar story in 2010…..this has forced the USA Treasury Department to announce on Christmas Eve that it will remove any limits to any aid extended to the two Big (otherwise Bankrupt) Mortgage Houses of Fannie Mae and Freddie Mac in the next three years….The Treasury continues to bail out the Country’s most outrageous Risk Takers….expect the next bout of the Housing slump in 2010….will extend even to Commercial Estate in a big way this year. 

Anyone wants my macro view on anything not covered above,do let me know

Do manage your risk rationally and focus on appropriate asset allocation to suit your Risk Profile,Goals and Needs….Rebalance your Portfolio if necessary…It will help you to protect and grow your wealth

I reiterate…It’s great to be an Indian in India…Top US Universities like Harvard,MIT and Duke have all evinced interest in setting up in India…Government may just allow this….soon you may have non Indian origin US Citizens migrating to India and applying for Indian Citizenship !

Cheers and all the best for 2010

Leave you with this thought…just imagine the day when ONE INDIAN RUPEE = 46 US DOLLARS….Yeah ! 

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