17th May 2012

The rupee is tanking, the sensex is sliding and inflation is rearing its head again - enough to cause a fresh round of anxieties among advisors and their clients. What's in store for equity markets ? When will we see a bull market? When will clients finally make money on equity investments? We turned to young Pratik Vasa - whose father Chandubhai Vasa is a veteran in Mumbai's IFA community - for answers from his technical analysis expertise. Pratik has majored in technical analysis in his studies in the UK and is now a consulting technical analyst, teacher and portfolio advisor. Read on to get his perspectives on the rupee, on the sensex and on gold - and also on which sectors will likely reward investors in the coming 2 years and which may not.

There are three key trends that I will discuss in this article - BSE Sensex, USD/Rupee and Gold (in rupee terms). Of the three, I will start with the USD/Rupee, which I believe is a strong trend and one which can set the tone for other assets.

Dollar View

Simple technical definition of an uptrend is a Higher Top and a Higher Bottom.

After a consolidation from (2002-2008 as shown in blue box) dollar has made a first new top at 52.19 on 31/3/2009 this is an indication of beginning of a new uptrend. After the first new High Dollar is forming a Higher Top and a Higher Bottom which confirms an uptrend so by definition Dollar will keep making new Highs over coming months. I will not be surprised to see the rupee quoting at Rs. 70 to a dollar in the coming couple of years.

Stock Market View

The market in the near term looks bullish where it might go to around 18500 to 19500 levels but it would be extremely difficult to cross 21000 levels. While Heavyweights like Reliance, Larsen and Toubro, BHEL, ICICI BANK still look bearish, stocks like HUL, TCS, SUNPHARMA, Infosys, and ITC look bullish.

The market range for coming 12 to 14 Months should be range bound where 19500 would be the upper range and 14500 would be the lower range. However, while the market may remain range bound, I see sharp divergences emerging - where stocks in the IT, FMCG and Pharma sectors can post new highs while those in the infrastructure and capital goods sectors may continue to struggle. Investing in the equity market has to be stock specific and sector specific as the overall direction is likely to remain range bound.

If I were to combine the dollar view and the market view together, it would appear that focussing on export oriented companies is a good strategy for the next couple of years.

I expect a rally to begin after 2013 where the index should go above 21000 levels - possibly to a top around 25000 - 30000. But the rally would be sector specific, and likely to be a short one - perhaps like what we saw in 1999-2000.

Gold View

Gold is a buy since the entire move is channelled and in an uptrend. It would be a sell once the lower trend-line is broken. It is important to note that this is a chart of gold in rupee terms. The 20% + correction in international gold prices over the last 8-9 months have been cushioned in rupee terms by a weakness in the rupee by a similar extent in the same period. Gold prices in rupee terms are likely to be supported by weakness of the rupee vs the dollar.