Buy the Pre NAMO rally to ride the Post NAMO rally

I am writing after a long time as there was little I found that I could add subsequent to what I had written the last time. As expected we are in the midst of a preelection rally, which I had expected to move to around the 22000 Sensex and 6500 Nifty levels. These levels are just around 2-3% away from where we are today.

The election wave towards the BJP is becoming stronger as reflected in the latest opinion polls. The growing wave towards Narendra Modi is not attracting a lot of allies which should ultimately lead the formation to near the majority mark going by the current trends. This augurs very well for the economy and the stock markets.

Just prior to expiring the UPA government took some good steps in terms of clearing projects and reducing the excise duties on a huge number of manufacturing items. The reduction for autos is particularly significant and should lead to a positive tick up in automobile sales.

The CPI inflation for the month of January also came in at a very benign level as expected by me, however it surprised the markets. What will be of greater surprise to the markets will be when CPI falls below 8% in the middle of the current years as against RBI’s target of January 2015. This will be positive for taking interest rates down in the economy. The other significant data point that came out yesterday was the CAD at just 0.9% of GDP. Normally the 4th quarter is the best for CAD and as such the overall CAD should now be more near $ 35 billion and much lower than the most optimistic of estimates till a couple of months back. As such the two bugbears for the economy and stock markets i.e inflation and CAD are falling faster than general expectations now. 

In terms of international news flow, occurrences like Ukraine etc are just buying opportunities in a fledgling bull market. Italian and Spanish bond yields have now fallen to all time lows and the European crisis seems to be quite distant now, from being at peak just 18 months back. A similar thing will happen in most emerging markets over the next 18 months. The current leadership at the US FED clearly believes that incremental money printing has lost value. As such we should see the imbalances inducing QE’s come to an end by the last quarter of 2014. This augurs well for overall inflation outlook.

As I pointed out at the beginning of the year, calling gold prices was difficult as everyone had turned negative. Prices have rallied 10% and gold bulls are back. However the fundamental case for gold still does not exist and post consolidation we should see another downmove.

I will be brief in this article but put out some very relevant graphs which give an indication of what lies ahead.

USD/INR- The rupee has shown a significant technical move and broken out from a triangle in a similar manner to what happened in Sept/Oct 2012 as seen in the chart below. Target range 59-60.



DAX BREAKOUT/NIFTY BREAKOUT- Whenever breakouts happen on monthly charts after a phase where similar tops have been made couple of times in the past the subsequent moves tend to be quite strong over the next 6-12 months. This is reflected in the DAX monthly chart given below and likely to repeat in the Indian Markets.




Overall we are on the verge of a strong sustainable upmove in the Indian markets. Subsequent to reaching a level of 22000/6500 we could see the markets consolidate till after the elections before starting a bigger move upwards.


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