Predicting prices for 2017 By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran
Posted by bobbysrinivasan on January 10, 2017
The Pundits who predicted prices for commodities and stocks in 2016 were completely out of whack. Ofcourse this is justified given that Donald Triumph won the US election and the Indian currency demonetization in November 8, 2016. Predicting corporate earnings and hence prices also failed badly. Let us summarise first some of the important and political and economic events that took place which were of significance to predict 2017 outcome.
The US interest rate was nudged up by 25 basis points in December 2016. Janet Yellen has said that three more nudging is in store for 2017. Market reacted to this information and the US Dollar index shot up past 100. Currently it is around 103 and it is likely to touch 110 in 2017. This means currencies like Yen, Euro, Sterling will continue to fall in value. The strategy for us is to buy Dollar against Rupee, buy Rupee sell Euro, sell Yen, sell Sterling.
The price of gold which as 1930 US Dollars in 2011 is currently trading at 1150 US Dollars per ounce. This is a 45% drop from its peak. As the US interest rate is hiked the price of gold will continue to fall. It is likely to drop to $ 1000 an ounce. The price of gold in domestic currency may hit a 25000 – 26000 level in 2017.
Real Estate: With demonetization of cash followed by an attack on the Benami properties, it is only natural that the grossly overpriced properties have to find lower levels. It is not the construction cost that has gone up but the price of the land. New launches have fallen significantly. The all India housing stock is placed around 42 months of sales with new procedures set by RERA. New launches will be rather slow. Currently builders are offering almost upto 30% discount upon negotiation. Thus the price of real estate will move more towards realistic levels which will be way lower than what it is today. In summary investing in real estate in 2017 will be a bad move.
Equities: The US equity market is currently bloated because of low interest rate and the inflow of money because of US Dollars strength. Indian Sensex is a different story. After peaking out around 30000 the market closed at 26366. December 2016 close was 26118. No change at all. But within Sensex Bank index moved up to 106.39. While Sensex was upto 100.95 (increase of nearly 1% over last year). FMCG sector at 101.6. Realty at 93. IT at 91. Healthcare at 86.16. Telecom at 77.95. This is when the expected GDP growth was around 7.6% for 2016-17. The last quarter of 2016 and the first three quarters don’t look good at all. Money is moving out of emerging markets. The market is waiting for a major correction in the value of Chinese Yuan and the stock market. If and when it materializes the Indian Sensex will face serious correction dropping nearly 15 to 20% from here. So the investor should now become a trader and be ready to exit the market. Selling Nifty forward long term will be a rewarding strategy. In summary 2017 will be the year of Triumphs new economic policy, China’s devaluation and continued uncertainty in the Eurozone and Japan.