Why I was positional short earlier
Now, those who have been regular visitors of my posts know that when I swing trade I don't take fundamentals into consideration. But, when I trade on positional basis, I do combine Technicals and Fundamentals together. I was positional short on the markets due to some fundamental reasons. Let me explain those to you first.
When I take a fundamental call, I take into account India's forecast of annual GDP growth, production numbers and inflation. Government of India had given a forecast of India to grow at 10% annual GDP. This was something I was not able to visualize. There were some reasons I thought about this. Let me explain in detail.
Firstly, savings rates, which remain the back bone for any economy to move forward, dropped in 2008/09, and this is likely to continue in 2010/11. Second, India's net fiscal deficit is at 10% of GDP which is also the highest in previous decade. Third, recently we have seen how dovish the Reserve bank of India is behaving regarding Interest rates. Currently, the interest rates have begun to move higher and my personal take is that with rising inflation, we could potentially maintain this trend. Lastly, appreciation of the rupee against the US dollar is beginning to act as substantial risk to Indian economy. There is no doubt that with growing economy, our currency will appreciate. But the real threat in this scenario is the pace of appreciation.Since March 2009, effective exchange rate has increased by 15.7% while that of other countries have seen little or no change.
What I had thought was that before moving forward, we would definitely see a bear phase. Fundamentals needed to catch up and that only happens when we give our Economy enough time to restore the economical balance.
Why I changed my stance from being Positional Bear to Positional Bull
Last week I had posted that if and when Indian markets start correcting, I would be buying heavily into it. I changed my stance from being a positional bear to positional bull. Here are the following reasons.
Now we all know that India is prospering and it grew at about 10% in previous decade. Analyst expect that this growth cannot be repeated and hence India would grow at 7.2-7.7% in fiscal 2010 -2011. Now, in their own right they could be right. But they are not discounting the fact that India grew earlier at higher levels due to exceptional Global economic conditions. Whereas now, India is growing based on faster expansion in private consumption and investment. With some reasonable accuracy, we can say that global economic conditions are not going to enter a confident phase for a long time to come. But will that impede India's growth? Well, the answer is no.
If one reads the 11th five year plan, then one would come to know that in the 11th Five Year Plan, Government of India would like to spend $500 billion in the areas of Power, Road, Irrigation, Railways, Water Supply, Ports, Airports etc. Now this is some serious money which will pumped back into our economy and will be again consumed within our country. With rising doubts about the real growth in "China" where would investors turn to. Which economy is surrounded with problems but yet continues to grow amidst all threats and crisis?
The biggest positive for India is that our problems our known Internationally. Investors (FII's) know we have had a problem of unstable governments, poor governance and problems associated with our neighbors. But yet, they recognize that India gets up at 6 in the morning, to live another day for a better future tomorrow. Our governments don't support their citizens like governments do in other parts of the World. But still, our people find perky solutions to the never ending problems and begin from scratch to build something substantial. These are some facts which cannot be validated statistically but are of immense importance to my Investment decisions.
Personally, when I sat back and weighed all the problems in India, with the number of opportunities in India, then the Opportunities surpassed the problems by a long margin. That for me was the critical point in being overly Bullish on our economy. I have had an amazing run from 2002 -2010 and I feel India's better years are yet to come. In conclusion, change in my thought process was equivalent to resetting my mind to the 2002 year. It was a gradual process and certainly not sudden.
There are obviously many more points to add, but I hope this certainly gives an insight on why I changed my stance. Time only permits me to write few things on the web.
Tc guys.
Now, those who have been regular visitors of my posts know that when I swing trade I don't take fundamentals into consideration. But, when I trade on positional basis, I do combine Technicals and Fundamentals together. I was positional short on the markets due to some fundamental reasons. Let me explain those to you first.
When I take a fundamental call, I take into account India's forecast of annual GDP growth, production numbers and inflation. Government of India had given a forecast of India to grow at 10% annual GDP. This was something I was not able to visualize. There were some reasons I thought about this. Let me explain in detail.
Firstly, savings rates, which remain the back bone for any economy to move forward, dropped in 2008/09, and this is likely to continue in 2010/11. Second, India's net fiscal deficit is at 10% of GDP which is also the highest in previous decade. Third, recently we have seen how dovish the Reserve bank of India is behaving regarding Interest rates. Currently, the interest rates have begun to move higher and my personal take is that with rising inflation, we could potentially maintain this trend. Lastly, appreciation of the rupee against the US dollar is beginning to act as substantial risk to Indian economy. There is no doubt that with growing economy, our currency will appreciate. But the real threat in this scenario is the pace of appreciation.Since March 2009, effective exchange rate has increased by 15.7% while that of other countries have seen little or no change.
What I had thought was that before moving forward, we would definitely see a bear phase. Fundamentals needed to catch up and that only happens when we give our Economy enough time to restore the economical balance.
Why I changed my stance from being Positional Bear to Positional Bull
Last week I had posted that if and when Indian markets start correcting, I would be buying heavily into it. I changed my stance from being a positional bear to positional bull. Here are the following reasons.
Now we all know that India is prospering and it grew at about 10% in previous decade. Analyst expect that this growth cannot be repeated and hence India would grow at 7.2-7.7% in fiscal 2010 -2011. Now, in their own right they could be right. But they are not discounting the fact that India grew earlier at higher levels due to exceptional Global economic conditions. Whereas now, India is growing based on faster expansion in private consumption and investment. With some reasonable accuracy, we can say that global economic conditions are not going to enter a confident phase for a long time to come. But will that impede India's growth? Well, the answer is no.
If one reads the 11th five year plan, then one would come to know that in the 11th Five Year Plan, Government of India would like to spend $500 billion in the areas of Power, Road, Irrigation, Railways, Water Supply, Ports, Airports etc. Now this is some serious money which will pumped back into our economy and will be again consumed within our country. With rising doubts about the real growth in "China" where would investors turn to. Which economy is surrounded with problems but yet continues to grow amidst all threats and crisis?
The biggest positive for India is that our problems our known Internationally. Investors (FII's) know we have had a problem of unstable governments, poor governance and problems associated with our neighbors. But yet, they recognize that India gets up at 6 in the morning, to live another day for a better future tomorrow. Our governments don't support their citizens like governments do in other parts of the World. But still, our people find perky solutions to the never ending problems and begin from scratch to build something substantial. These are some facts which cannot be validated statistically but are of immense importance to my Investment decisions.
Personally, when I sat back and weighed all the problems in India, with the number of opportunities in India, then the Opportunities surpassed the problems by a long margin. That for me was the critical point in being overly Bullish on our economy. I have had an amazing run from 2002 -2010 and I feel India's better years are yet to come. In conclusion, change in my thought process was equivalent to resetting my mind to the 2002 year. It was a gradual process and certainly not sudden.
There are obviously many more points to add, but I hope this certainly gives an insight on why I changed my stance. Time only permits me to write few things on the web.
Tc guys.
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