Monday, September 16, 2013

Ashish Kyal - View on Gold, Sensex, IT & Rupee relation in Economic Times of NBT

Gold rally in India is not sustainable since it is only local and not global!
The below is the English transcript of article by Ashish KyalCMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.
A true rally in Gold happens only when we see Gold move up against all the major currency pairs across the globe. Gold is true money and not a single currency has the capability to measure its true value. Also to understand the performance of this precious metal it is important to see its performance against well known currency from developed nations.
The recent bounce back that we are seeing is just a pullback of the down move from 2012 to 2013. During this pullback Gold in INR has touched life time highs due to sharp depreciation in INRand not because the major trend of Gold has resumed on upside. Gold in USD, AUD, GBP made top in 2011 itself. Gold topped out in EUR terms in 2012 and is substantially below the high levels. This is going to be a dangerous scenario for Gold loving country like India since people look at it only from INR perspective and fail to appreciate that Gold movement currently is just localized and not a Global phenomenon. So we think the recent run up in MCX Gold towards 35000 levels is not a true rally but a bull trap!
Sensex and Rupee movement over past week!
Sensex managed to cross above 19560 levels which was previous month’s high and showed one of the strongest move seen since past 4 years. Prices also took out 200 days Moving average with a Gap up opening on 10th September and gained by more than 700 points in single day. Banking index and stocks from Capital goods sector like L&T, BHEL showed very strong movement and took index towards 20,000 levels. The overall breadth of the market also remained positive.
Indian Rupee also showed substantial improvement with USDINR moving from the lifetime levels of 69 to near 63 in just 5 days. We will not be too optimistic about this move since it has happened over a very short period of time and we require more stability in Rupee. A range bound consolidation is important for companies to start marking their products and forecasting their growth in more predictable fashion.
Sectoral analysis:
Banking sector after showing one of the worse performance over past few months has showed good strength since past 2 weeks. Apart from Banking stocks, Auto and IT sector continued to outperform markets. Tata motors gave very strong breakout from the consolidation zone of 320 and 270 on 10th September. This stock touched life time highs when majority of the stocks on BSE are trading near their 52 weeks’s low. Even IT sector has been constantly outperforming with TCS hitting life time highs and Infosys giving positive breakout from range bound movement for more than a year. This clearly indicates that inherent strength lies in IT and Auto space which are making new 52 week’s high.
Does Rupee decide trend for IT stocks?
Many people are under the impression that the depreciation in Rupee is the reason for IT stocks to outperform. But this is not correct. There are many things we believe but it is baseless. In 2013 itself, TCS has rallied by almost 65% whereas USDINR depreciated by only 25%. Food for thought is during the world crisis of 2008 USDINR depreciated by more than 30% whereas during the same period the IT major TCS also fell by almost 50%. Rupee is one of the risk components for IT companies but not the core business. IT companies look at Rupee not from generating better revenues but from reducing the risk exposure. So we think IT sector can continue to outperform over long run irrespective of Rupee movement!
Week ahead:
Sensex has now managed to cross the first hurdle of 19560 level and also closed above 200 days Moving average. After such strong gains within short period of time we can expect some consolidation and range bound movement between 20400 and 19300 levels in current week. A weekly close above 20500 will be important as it will break the important resistance line valid since past 5 years. The monthly tops of 2008, 2010, 2011 and early 2013 have reversed from thistrendline. A decisive close above this trendline will be a first sign that a bigger and stronger trend on upside is on its way!
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