Few Words on Market…

By Vivek Karwa, Certified Financial Planner^CM

We all entered into the year 2015 with many expectations and hopes of making handsome returns on our investments on back of stable and strong government at the centre. But many forgot that the numbers in the Rajya Sabha are tilted against the government. The sad part in our country is that politics is played in personal interest first and national interest comes only later. This applies to the whole system and not trying to single out any in particular.

Thus, with washout of two sessions of parliament it has become clear that the government cannot rush through major reforms till the number equation changes in the upper house. Until then the pace of reforms will be at a normal and hence we saw major correction in the market. Hence nothing big happened in the year 2015.

The year 2016 will surely be better than 2015. Investors should understand that when we enter markets we cannot expect wonders to happen within 12 or 18 months. Fair time period which we should give is 36 to 60 months. When it’s said 2016 should be better, it has reasons behind it.

The major two factors which will contribute to the positivity in the economy are slump in commodities prices and the crash in the crude prices. Out of all factors, I want to today touch in detail the Crude oil prices and the discussions people are having around the policy of the government towards the fuel prices.

Many people have been complaining that the #CrudeOil prices have fallen from almost levels of $100 to $37-40 today, yet the fuel prices have come down just around to Rs.65 from the earlier levels of Rs.77 approx. Though the petrol and diesel prices are down, they are not down proportionately to the crude oil prices.

Some people are furious on why government is not reducing the prices and why it wants to fleece consumers! This Notion is wrong and ill thought off.

1. Let’s firstly understand that India’s crude oil import bill is too big. Whenever we import something, we need to pay in dollars, so is the case with crude oil. With Rupee at 67 against the dollar we cannot afford to reduce our dollar balance, meaning Currency Reserves.

2. We need to understand that when the crude prices were going up, the government did not increase the prices in same proportion the way we want them to decrease now! The so called under recoveries were as high as Rs.12/- meaning we were being subsidised in big way, that made our Fiscal Deficit monstrous and at a point of time India faced a risk of sovereign downgrade.

3. Crude oil price correction is helping the government in improving the fiscal situation.

4. Government will collect almost Rs.1 Lac crore from the additional excise duty hikes we have seen in the fuel prices.

5. Corporate sector is already facing huge debt pressures and will not be able to spur growth by way of capital expenditure! They just don’t have the money. It is government which will have to announce and award various projects and start the spending. This money collected from additional excise duties will help. Economy will recover in the process. Government is in fact already active in spending.

6. The fuel prices cannot be allowed to come down freely for more logical reasons, just assume the petrol prices are cut to Rs.30/- what can happen?

a. Crude oil prices are unpredictable! Assume they suddenly shoot to $50, will there not be a social unrest if the prices of petrol and diesel are suddenly doubled? Hence better to keep them in stable price range by way of increase/decrease in taxes.

b. In today’s situation if the crude prices go up, government can reduce the excise duties and let public not face the sudden brunt. This keeps the inflation levels also in check and will help RBI reduce rates further.

c. If the prices are cut along with the crude price, the consumption shoots up! Thus nullifying the fiscal benefits!

7. If the fuel prices are cut drastically, the consumption increases, the vehicle sales increase adding further to the pollution levels. We are seeing what is happening in the capital already! Vehicle sales increase the traffic congestions also!

8. Government is pursuing hard to promote clean energy like the Solar Power, who will spend on Solar Projects if fuel becomes cheaper than water?

These are few points which come to the mind. People criticising for not reducing the fuel prices need to seriously ponder over these points. All numbers mentioned above are approximate.

So where can we expect Sensex to be in this year? No one is god to tell what will happen, but yes, can surely mention some expectations for the year. Everyone is interested in knowing about the Sensex and Nifty index expectations for the year. Taking precedence from previous years let me mention the Sensex level expectations.

Discussing the possible loss first is always better. The worst case scenario for the whole year is in the range of 23300-23000. Not to forget last year’s level 24500 still remains intact, so until that stands we need not fear seeing 23000.

On the upper side Target.1 should be in the range of 29140-29500 and if that’s broken decisively we may test Target.2: 30800-31320. These are targets assuming that GST will not be allowed to be passed in near future. If big bang reforms like GST happen, then we will surely see better times ahead and the views will be written again.

Also track, BSE100 which constitute most large companies. The targets on that can be like this: Target.1: 8950-9050 and Target.2: 9500-9625. Reading Sensex targets along with BSE100 will make more sense this year.

This Article might be Printed in the Investors Digest Magazine of TamilNadu Investors Association (SEBI Recognized)

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.

Happy Investing.

Vivek Karwa