USD at ₹64, poised for 60 in few months

When it rains, it pours cats and dogs. how true is this saying. A period where everything is working in India’s favor, good governance, good geo-politics, international accreditation, good monsoon, pro-industry bureaucracy, lower commodity prices, high on reforms, high on FOREX and along with that strength of the INR.

A couple of months back, USD was trading at ₹69 to a dollar, now it is ₹64, a near 10% appreciation. If INR appreciates, it is pain for exporters. IT companies have lost 10% of their margins just because of this appreciation. Analysts expect the USD to reach 60 soon, IT and Pharma will become a sure no, no for investors.

In spite of the USD losing value, our FOREX reserves have reached historic peak, we are about to touch the $400 Billion mark by September 2017. Again another good thing is that, the remittances from NRI’s have been on the high, both because of the top class investment climate in India and the uncertainties of holding USD. Along with this advantage, Crude Oil prices holding at $60 is a big advantage for India.

Above 60B$ saved per annum and crude will not see its previous high of 126$ again, it will only decline. All these savings are expected to be ploughed into the economy in various ways, one of the main emphasis would be infrastructure. Look forward to see a totally changed India in the next decade.

China Ghost haunts again….

Sleeping BullReturn of the dragon for the markets in beginning of calendar 2016, though not a welcome sign, it was waiting to happen. All the effort that the Chinese government is making to stop the markets from sliding down is becoming counterproductive. Following the market crash in August 2015, they had imposed a ban on selling for large investors for a period of 6 months, which is now coming to a close and in the meantime, they introduced shorter circuits. Circuits are a mechanism to put the market to a halt when it goes out of control in any direction.

Falling Bears

 

This new decision brought more selling pressure and their markets hit downward circuit twice in a week. Overall strength in the Chinese economy is very low, it cannot get revived overnight. Even if they strengthen, there are no chances that it will be the same as it was in the last few years. China story is over now, whereas the tremors that this behemoth economy will bring to the global markets are going to be pretty high. As the Chinese government take the next step to devalue their currency which is expected to be 4-5% from the current levels, it will impact the emerging markets highly.

Export businesses will take a hit and following this event, USD is likely to touch or move past Rupees 71 to a dollar.

As the large cap stocks have taken a bigger and prolong hit, recovery is likely to be in that segment, though it might give significant gains, it will for sure help the SENSEX and the NIFTY give some decent gains in 2016. Mid Cap stocks will take a back seat this year and there are likely to be many exits in our portfolio and to some extent this space will get occupied by Large Cap stocks.

While there are opportunities available always in the markets to grow our savings if we are able to identify good growth companies, which is the stronghold strategy at BTT.

Rising Dollar & its implications on our economy.

Strong dollarA rise in the value of the dollar has always been painful and has impacted the economy negatively & it will not be anything new this time. The dollar is likely to touch 70 to the INR soon. When the impact on the overall economy is negative, there are some good news too when the dollar appreciates in value. The businesses that are deriving their income from exports become beneficiaries of additional profits with zero effort; all of a sudden the Net profit margins of these companies will have a rise along with their EPS, thus bringing in additional value to their stocks.

The sectors that have a positive bias when the dollar appreciates are Software, Pharma, Textiles etc., among these sectors, the companies that have good management and high growth in their performance attract high valuations in the market. Some stocks that we have picked up just before the negativity set into the rupee depreciation were Tata Elxsi, Aurobindo Pharma etc., these stocks have begun to gain strength and are contributing to the overall performance of the portfolio.

News2As of December 18th, the broad markets are down more than a percent for the month while our portfolio has managed to have 0.25% profits, thus having an advantage of 1.25% over the benchmark from 1st December 2015.

In the last 6 months our portfolio went into a churn more post China crisis and it has got automatically aligned to the software, pharma & textile stocks, holding investments in the top performing stocks in each sector. In the Mid Cap Software sector, we have exposure in Tata Elxsi, KPIT, NIIT Tech, Tale Solutions, Zensar Tech and Ramco Systems, 6 out of the top 10 list. Pharma and Textiles too have similar exposure thus giving us the best of advantage to capitalize on the dollar rout.