In the last year, we faced a number of diverse and significant changes in the global/Indian economy & financial markets. In the Indian context, major stories came from Bitcoin, US Dollar, GST, Oil & tumbling of Indian stock market. As 2017 is coming to an end, we asked 4 of our most popular contributors to their strategies for the coming year. We received exciting mix of views and have prepared this article
Vivek Bajaj- Indian Stock Market Is In A Great Shape Outperforming Its Peers Market In The World.
The market once again reached lifetime high area after BJP’s win at Gujarat Assembly election. There is a strong possibility that the rally which started in the year 2017 is likely to continue in 2018 as well. Since January 2017, Nifty has jumped almost about whooping 2500 points which comes to approx. 30% return.
However, some of the most important events which could affect Indian stock market in the year 2018 include:
- The stock market cheered BJP’s win over the Gujarat Assembly elections but in order to come to power in 2019 election, the government has to ground its feet in other major states as well. The state assembly election which is going to take place in 2018 includes Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh, Mizoram, Meghalaya, Nagaland and Tripura.
- Next year will be the last budget for 5 year term of NDA government which came to power in 2014. With so many key policy reforms and structural changes taking place in our country in about last 4 years, the Union Budget of 2018 will be very keenly watched by the market participants. It will be one of the important trigger for market in the year 2018.
- There was a 25 bps interest rate hike in Janet Yellen’s last policy meeting which took place in the mid of December 2017. The possibility of three more rate hike in the coming year will be keenly watched by the market and will be another important event in the year 2018.
Apart from the above events, some of the major concerns which may give you an early reversal signal include:
- The current PE ratio of Nifty stands at 26 which is trading at an alarming level. Historically it is seen that whenever P/E ratio of the index has crossed a limit, stock market has crashed or has corrected itself. In Dec 2007, the PE ratio of Nifty 50 was trading at a whooping 27 levels. Keeping that in mind, it is better to stay cautious and keep booking profits at regular intervals.
- Indian Central Government has been a big beneficiary of lower crude oil prices. The Indian companies which has crude as a major raw material got a big lift in profitability as they were able to retain the input cost benefit. Higher crude oil prices adds to inflation woes which in turn puts pressure on inflation as was witnessed in 2008.
The growth story of Indian market can take a hit if crude prices stabilize above higher US$ 60 (presently at $58) which will bring back inflation due to base effect and derail Government’s Capital spending. With the inflation going, the interest rate will also go up affecting the banking sector. The pressure on India Rupee increases as Crude is a major component of Indian imports which leads to higher import cost in the country.
On a concluding note, there are lot of events and factors which would shape the future of stock market in the coming year. There is a possibility of some up move in the coming months but at the same time, you should also stay cautious given the above discussed factors. However, the Union election to be held in 2019 will be another event which would significantly impact stock market in 2018.
Considering all the above factors our estimated Nifty range for the coming year is 9000 - 12000 with our base case Nifty target for 2018 is 11500. Similarly, our 2018 Bank Nifty estimated range is 21000 - 28000 with our base case Bank Nifty target for 2018 is 27000.
Abhishek Parakh- Currency Outlook Would Remain Bearish
Stock Market: After a year-long bull run, equity markets would continue to go see new highs and after a small consolidation /correction nifty would touch and breach 12000 levels in the year 2018.Charts clearly suggest that fresh buying momentum will generate in Pharma and IT counters. So keep these defensives on your radar for entire year 2018
Commodities:
- Crude Oil will continue its upward journey and could see levels of around Rs.4500.
- Precious metals could see another year of consolidation and it could correct further from here. For Gold, USD 1100-1080 per ounce or Rs.24500-25000 per 10 grams would be the best level to buy. Analysis remains same for other precious metals.
- Base metals could see a correction as of now. However, going ahead, positive Chinese data would be a big supportive factor for base metals and overall, it would be an another positive year for base metals.
Currency: Currency outlook would remain bearish. It will remain in the range of Rs.63.5-67 per USD in year 2018.
Balaji- Bitcoin Bubble & Crude Oil Intensifies In 2018
As a Trader, I am not a big fan of predicting the markets or playing against the laws of probability. My work is to find good trades, find ideal type of trades that has excellent risk: reward ratio and find it consistently over long run. But every year when December approaches, a common question arises in all traders mind – How next trading year would look like? So it’s necessary to have an outlook map about the markets to keep us prepared for the coming year. Here are my expectations based on Macro and Price action perspective.
Bitcoin Bubble Intensifies in 2018
With Bitcoin mania now taking over the main stream, it continues to pull investments from average mom-pop investors and get rich quick adventurers. This reminds me of the same scenario we saw in gold during 2009 – 2011. Even the so-called Bitcoin experts are using the same logic to predict irrational prices like 500,000$ a coin valuation. As per these experts, Bitcoin is the digital gold of the future and will take up same market capitalization as gold. This caught my attention and ultimately Robert shiller’s book Irrational Exuberance came to my mind.
In precise sentences, Bitcoin clearly seems to fit the description of an Asset bubble – Upward price movement over an extended period of fifteen to forty months (which cannot be explained in terms of fundamentals) and then explodes drastically. When an instrument receives excessive public attention along with prices making stellar highs, we may get a temporary correction to offset that market imbalance. If you’re an Investor or a trader in Bitcoin and crypto currencies, it’s better to reduce some exposure from the overvalued instruments. 2018 would be interesting year to see how this Bitcoin bubble unfolds whether it would burst or further makes new highs!
Changing Fundamentals of Crude Oil might change the Market sentiment in 2018
So far Bears are driving the narrative in Crude oil from last 3 years. As we progress into 2018, Bears might find it hard to maintain that status quo. What’s the Primary reason? Fundamentals are changing slowly and swiftly! First of all market is overstating the Oil’s supply growth and underestimating OPEC’s decision to extend their output agreement to keep the production steady till end of 2018.
Another interesting fact is Shale productivity growth is slowing at an alarming rate whereas Global oil Demand is increasing and global economic growth is picking up. As an indication of these fundamental changes, Crude Oil prices are trending higher since June 2017. By looking at these factors it seems likely that market sentiment might shift in Crude oil. We are already witnessing an intermediate uptrend in Crude oil daily chart. Market action will be interesting to watch in coming year.
2018 will be a Tough year for Gold Prices
Gold investors might not see a sustained rally for 2018 as there are many reasons why they can’t! With Market participants still demanding Stocks, Bitcoin and other alternative investments, many are not paying attention to precious metals, if the same narrative continues Gold Prices might have a tough time in 2018. Not only that, Gold is far from being out of the clutch of 20 year Long term Bear market cycle!
But didn’t we witness some short-term uptrend and rally on gold in the beginning of 2017? Yes we did, because in long-term secular bear market you do get multiple rallies as Price bounces back and forth, that’s how long-term bear market cycles work in Commodities. Apart from that, rising interest rates also pose a big obstacle for Gold to shine in 2018. When we look at markets from Historical perspective, rising interest rates increases the dollar value which technically is negative for Gold prices. Given all these facts, Gold seems to face a tough year ahead.
Shailesh Saraf- Crude Oil Bulls to roar high in 2017 on production cuts by OPEC and Non OPEC members
The biggest story to hit the headlines in December 2016 was the deal by OPEC and non-OPEC members. For the first time, a deal has been signed which is a paradigm shift as markets never anticipated the deal to go through. On the backdrop of this development, Nymex crude has reacted positively on the upside with a new high above 52.4, highest level since July 2015. The expectations are with the approaching seasonal demands, crude may hit a high of US$ 60 in the first quarter of 2017. The price of crude can bring in a big change in global macro fundamentals picture of big crude oil consumers like India and China.
Will India’s Growth story take a dent, if Crude Oil sustains over US$ 60?
Indian Central Government has been a big beneficiary of lower crude oil prices. It has been able to raise indirect taxes in crude oil which is one the big catalysts for the high infrastructure and defense spending. The Indian companies which has crude as a major raw material got a big lift in profitability as they were able to retain the input cost benefit. India stands to lose with high crude oil prices as it increases twin deficits, fiscal as well as trade deficit. Higher crude oil prices adds to inflation woes which in turn puts pressure on inflation as was witnessed in 2008.
The growth story of Indian market can take a hit if crude prices stabilize above higher US$ 60 which will bring back inflation due to base effect and derail Government’s Capital spending. The pressure on India Rupee increases as Crude is a major component of Indian imports which leads to higher import cost in the country.
The Companies to benefit on a sustained uptrend will be upstream companies ONGC, Cairn India (NS:CAIL), Oil India (NS:OILI), Gail India and Oil Drilling companies like Aban Offshore (NS:ABAN), Dolphin Off Shore, Selan Exploration and Hindustan Oil Exploration (NS:HOEX).
It has been observed in the past that rising crude prices positively impacts companies like ONGC, Cairn India, Oil India etc, which produces crude as an output.
Nymex crude rose from a low of US$ 32.70 in January 2009 to US$ 114.18 in April 2011. ONGC was also seen to ride this growth ladder. ONGC share price rose from Rs 146.95 2009 to Rs 325.65 in 2011. This is just one example.
Nymex crude gave a breakout on Monday. It touched a high of US$ 54.51 and made a low of US$ 52.18. It will be a matter of great importance if it gains as much as US$ 60 a barrel in 2017.