It’s Deepavali again! Or Diwali! And in the festival of lights, it’s time for us to make predictions and give you our piece of gyan that we end up doing every year. We’ve already talked about how our predictions panned out last year. For this year, we predict the following:
- Stock markets will see turmoil in the coming months, with volatility increasing as it has in the recent past, except we’ll see a lot more. While we struggled to see a 20% move last year we’ll see many 20% moves in the coming months, on the index.
- The Indian Economy will slow down yet again. This time there will not be much jugglery to save the numbers. The slowdown will be on the back of lower discretionary spending and increase in taxes by the government, which will attempt to increase its spending through political packages.
- Bank stocks will see a LOT more NPAs coming on to their books and credit growth will fall substantially until they get their act together and raise capital. Even the best banks will see a hit, including private sector banks.
- Foreign investors will slow down on stock market investing. And they will get spooked by potential corporate defaults and start taking money out of corporate debt.
- With the debt markets hit, the RBI will cut rates by another 1%.
- NRIs will need to be repaid $30 billion by the banks, through the RBI hedges set up in 2013. This will be in November, but it will cause turmoil in the rupee markets from June onwards, as RBI unwinds its foreign currency forwards to collect money to pay up. The rupee is likely to hit 70 and 55, perhaps both.
- The US will eventually hike rates and this will be a positive for all stock markets. Because, phew, it’s done.
- The government has promised to lower corporate taxes, but it will raise other taxes to pay for the difference.
- China’s slowdown will change its nature from an export oriented country to a consumption oriented country and they will push the Yuan as an international currency in Asia. This will need India to act but we will prefer to not do anything.
We understand this doesn’t tell you which stocks to buy. Because we are terrible at predicting which stocks will make money in a year. They may make 100% in six months, and then lose all of that in subsequent months. If you get in and have a 10% stop loss, you will still make 80% returns. (Rs. 100 stock goes to Rs. 200 then retraces to Rs. 180, for example, at which time your stop loss is hit and you exit. Then it goes back to Rs. 100 over the next few months).
In such a case, I will be judged on the stock prediction – “it made 0%!”. But to the investor, it had a healthy return. And similarly there might be other stocks where you lose first (and exit at a loss) and then see it move up.
Predicting which stock will do well over a one year period is largely useless and a waste of time, unless you’re doing it purely for entertainment. However there are things we see as concerns.
Game Changers for Stocks
The Trans-Pacific Agreement could change a lot of things for the textile space, and hurt our yarn and textile exports. It could hurt pharma exports as well.
If the pay commission report gives a big boost to incomes of government employees, we expect more growth in discretionary spending, like air travel, cars, motorbikes and restaurants.
The inflationary impact of a tough monsoon will be visible after February 2016. This gets tricky because the budget’s right about then. A package by the government could hurt the fiscal situation.
NPAs have already hurt banks, but will the public sector banks see a return to investor love, after they’ve been beaten up so much?
The startup bubble will start to deflate, and it could get much worse going forward. Especially with a US Rate Hike and lower economic growth in India. The bubble isn’t very big right now, but there is enough money riding the wave to be affected. Of course, the media will glorify every layoff.
Happy Diwali!
And wish you all a very prosperous year ahead!
