Now let us correlate that with some data points that we already know for the month of August09-
-The production of Cement has growth by 17.8% for the month of August (almost a record of sorts)
-Electricity generation for the month has grown by 10% plus
-Automobile sales have grown on an overall basis by a whopping 24%
-Steel production and sales are up by over 5%
Now coming to some empirically observed data by in terms of our interactions with the managements of various companies.
-Mining activity continues to be strong as such data coming out from the mining segment should be good for the month
-Consumer Goods demand growth has very strong momentum going for it and as such the growth is expected to be well over 10%
-The growth in capital goods continues to be very strong and the production data should be in excess of 10-12%
Taking into account all these facts and also given empirical evidence of pick up in activity all across and also combining it with a very low base for the month of August 2008 it is very likely that the IIP growth for the month of August 2009 will be over 10%.
US Dollar Crack, Gold and other Risky Assets
The US Dollar as per my analysis of the chart of the US Dollar Index has cracked below key support levels and the current formation seems like indicating that we will have a retest of the lows of the US Dollar Index seen in the first quarter of 2008. This could see the US Dollar selling of by a further 6-10% from the current levels and should be positive for commodities and equities, especially GOLD. I have come across some very interesting data on gold that has made me even more bullish on that commodity
-The total stock of gold ever mined stands at 161,000 tonnes valued at around USD 5 Trillion at current prices. This is just 10% of Global GDP
-The total stock of this as Central Bank reserves is much lower at around 30,000 tonne
-The total value of gold in the portfolio of Global pension funds is just 0.8% of their total value. If they want to increase it to 1% they will need to buy nearly 10,000 tonnes which is around 5 times of the average volume of gold mined in a year
-The total reserves of all Central Banks combined is around USD 6.74 trillion and gold is just 2% of this
In conclusion although as an equity fund manager I should be rooting for equity, the case for both Equities and Gold both remains strong. Equities will deliver better absolute returns over the next few years with higher volatility and Gold will deliver lower absolute returns with lower volatility.
In anticipation of the strong IIP number and the dollar weakness I expect that the markets should continue to trend upwards and we should be able to see NIFTY around 5000+ levels near to Diwali time.
“I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock” In a bear market most stocks go down and in a bull market they go up.