Emerging Economies – Second Half of 2012

First we will review the things which I stated in my previous article dated 6th December 2011 –

I said First half might remain turbulent which happened quiet in that way pushing the Stocks & Economy to the lower levels.

Gold went down and it might go down further possibly upto $1300/ounce.

I caught wrong in “Crude” which dipped but still I feel it might catch fire somewhere at the end of this year.

Now Let’s See how the Second Half will be for INDIA

All the leading Macro Economic Indicators detiorated drastically be it IIP, GDP Estimations, Earning Projections, Inflation , Debt levels, Sovereign Rating but here I would like to say this is quite a bottom out stage for all these indicators. But HOW?

  • Higher Current Account Deficit: @ 3.9% am alarming level which is as close as 1991 level of 3.1%
  • Inflation: 7-8% beast haunting our economy
  • Rupee: Almost 30% depreciation against US Dollar
  • No major policy measures taken by Govt. yet


Now how can we say this condition will improve, I feel –

  • The two commodities wreaked Havoc to our economy that isGOLD & CRUDE.

OIL import bill is a major contributor to our Current Account Deficit but as we witnessed a sharp fall in Brent Prices from $128 per barrel to almost $96 which could give slight boost for a coming quarter. This will eventually push down the Inflation number also.

  • Gold demand has fallen almost 15% in the last three months because of the selloff in Global Gold Prices after making a high of almost $1940 per Ounce to a current level of $1590.

So at least these two things can control and lessen the pain of Current Account Deficit by almost 0.5-0.7% which will help in Appreciation of our Rupee, our currency can appreciate to the level of 46-45 against Dollar.

  • Another thing is Policy Action by Govt. which is bound to come after Presidential Elections (due on July 19). This will lead to take big measures like Foreign Direct Investments, Import Duty on Gold, Disinvestment Actions. Remember our PSU’s have almost around the worth of 10 lakh crores so the dilution of 2-3% is enough to take care of our deficit. This will also decrease the threat of denting the Sovereign Ratings.
  • Last Action will be taken by RBI by cutting its lending rates, till now we have seen seeing the easing in Ratios but soon to propel the growth the reduction in Interest Rates is Must.

In this way I see a Second Half would be better in terms of Stock Prices and Economic Indications.


Other Emerging Economies

  • We already had seen how China is fastly cutting and easing the lending rates, they did tightening but now loosen up the noose. This will ultimately give the temporary boost to the prices of Commodities for at least a period of 6 months. Look out the RJ/CRB Index after touching lows now improving again so the reflection might be in Shanghai Composite IndexBrazil’s Bovespa might also follow the Shanghai Index.
  • Korea surprisingly cut the rates two days back.
  • Infact I see there might be a surprising focus on the countries which had been hammered in 1997 South East Asian Currency Crisis like Thailand, South Korea & Thailand, Taiwan, Philippines.
  • There might be a bigger move expected in Myanmar which is lowest in radar in Foreign Fund Flows but the return of Great “AungSann Sui Kyi” might change the whole picture.

So I feel the West is almost dried out and in East particularly South East Asian Belt might attract lot of foreign money.


  • Nifty might touch again the level of 5800. Not much higher because we just witnessing the bottoming out signs but the growth yet to come so we have to wait for 2014 for real action.
  • My lower level target of around 4500-4200 again is intact for Nifty but that might happen after US elections probably somewhere in 2013 because the Possible Break upof EURO and Paralyzed Banking system of US & Europe might trigger the big sell off in BONDS then Equities We would also have to bear the pain.
  • The Big Decoupling Theory might happen and we will get decoupled from West in 2013-2014.
  • Gold might go down further to the level of $1300 per Ounce. There might be sudden jumps but this year or next year this level can come.
  • Commodities Bull Run will continue but the full swing I feel towards the end of 2013. Till that time we have to bear the hiccups and meanwhile CHINA will also pick the momentum from its downturn because is a BIG Major economy which has TradeSurplus. The consumption power is huge so no big worries and no major threats to Renminbi also.
  • In the next five years Agri Commodities might catch a fire because of Weather and Acreages so it could translate in stocks which are related to Agriculture.
  • My target of CRUDE is intact i.e. $150-180 per barrel because I feel the Geopolitical tension would increase between IRAN & ISREAL but after imposing sanctions US opened up the lid of reserves and then Saudi Arabia also used their reserves which increased the Supply of World CRUDE.
  • The Rupee can appreciate to the level of 46-45 against Dollar but the Dollax Index remains firm globally against the basket of six major currencies.


Disclaimer: In this article all the opinions and predictions are my personal and it has no relevance or connection with any of the report and views of any broking/equity research company.



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