Archives March 2021

Base metals are like spartans in the current environment, standing tall and resilient in front of Persians in the form of:

1. 130 basis point rise in US 10 year bond yields in last one year to 1.77%.
2. Dollar Index at 93.4
3. Higher Covid cases with third wave in Europe and second in India and Brazil. This leads to uncertainty in economic recovery and thus lower demand for infrastructure and industrial related metals.

With Dow Jones, Nasdaq, Nifty, Sensex, DAX, FTSE, Hang Seng, etc taking hit in last 3-4 weeks because of the above-mentioned reasons, base metals are standing tall. With the exception of Nickel which has seen a decline of more than 10% from higher levels, other metals like Copper, Aluminum, etc. have not taken a double digit correction.

Looking at their strength and other macros, it looks like that they are consolidating and gearing up for the next move.

Our bias will be towards Copper here

and Steel in Ferrous metals.

After yesterday’s fierce move on Nifty 50 when the benchmark was up by almost 2.4%, its time for some consolidation today. It will be a wait and watch mode for Nifty 50.

Double whammy and twin concern in the form of US 10 year bond yields at 1.75% and Dollar Index at 93.4 is not giving positive signals for developing markets like India.

Also, Nifty took resistance at 20 day MA ( Moving Average ) at 14850 and has retraced from there.

Hence the call would be to wait and watch levels of 14850-15000 on up side and 14250 on downside to call some sense of direction.

On cash side, few of the interesting calls and bets can be taken on:

1. IT- Stocks like TCS, Infosys, HCL tech, etc which will benefit from depreciating INR and higher Dollar index. Also because of the digitalization wave after pandemic, the revenue pipeline and earnings for last quarter of FY 21 would be good.
2. Pharma – Pharma as a sector is in a consolidation zone since 2015-16 and broke out in 2020 because of Covid. This also benefits from higher conversion rate of USDINR. Also, the overhangs in sector because of US FDA has trimmed down because of higher demand for medicines and India is a key exporter. Hence, stocks like Sun, Lupin, Dr Reddy looks good from current levels relative to the overall market.
3. Consumer Staples – Evergreen defensives like HLL, Colgate, Dabur, etc. seems to gain in the current uncertainty and can be looked for accumulation.

Gold prices have again corrected back to around 1700 dollars over the weekend after a short rally to around $1740 levels over last few weeks. This is roughly around the prices that Gold was close to 10 years back. Gold prices move will now be testing patience and conviction of traders and investors.

In India, prices of May Goldm Fut is seen around 44400 levels after a recent rally to 45600 levels.

This is because of higher US 10-year bond yields around 1.73% and dollar index hovering around 93 levels.

We all know that higher dollar is negative for gold prices.

Higher bond yields also take money and flows in them as gold and silver don’t give any dividends.

It was only few months back in Aug’20, when the entire world wanted a pie of Gold and the bull case scenario was presented even at a price of $2080 too.

That price had a lot of risk sentiment and risk premium priced in which has withered away because of vaccine roll out and higher growth expectations.

At the current juncture, when US administration has passed a $1.9 trillion package in 2021 and are in midst of a further $3 trillion infrastructure package, situation is ideal for a look at gold.

I would like to highlight that the amount of printing $ in US was quite stupendous in 2020 and the year saw 20% of the entire dollars in circulation being printed last year alone.

Hence, current levels can be looked at for investment in precious metals and the accumulation can start.

The markets will be opening today after a long Holi weekend and the cues look optimistic for a higher start on Nifty. There should be a bounce back in Indian stock markets.

US 10-year Bond yields have surged to 1.73% and dollar index at 92.9 looks very close to 93. As per the technical analysis, it can go into a new bull zone above 93.

Higher US bond yields will mean strong dollar as funds flow into US and thus is quite negative for emerging markets, including India.

However, in the current scenario, higher bond yields mean high growth across major markets and thus Nifty is higher even after a higher dollar index.

After a last week low of around 14250-14300 for Nifty, which is 66% retracement of the entire rally after budget 2021, levels to watch out for are 14800-14950.

As per me, looking at the run up and current macro environment, we are in a consolidation zone with downward bias. This is because we have started making lower lows and lower highs in Nifty in last few weeks.

Hence, lets watch the levels of Nifty today as to where it closes.

Investors and traders can look at their overall positions which they are holding and long-term positions can be lightened up till the time more clarity emerges.

For equity markets cash calls, investors can look at Pharma, cement and IT.

Few stocks which deserve a look at current levels are Sun Pharma, TCS, Ambuja Cements, etc.

With Gold and silver having being corrected close to 20% and 15% from their last year highs, they are poised at an interesting level. This is a critical point for precious metals.

The decline happened as investors feared the dollar index has made a bottom around 89 and risk on trade with vaccination in the world is on. Many think that economic growth and inflation will be higher than anticipated and this will lead to tightening and harder stance by Fed much before than they anticipated.

However, after the FOMC meet on 17 March’21, it is quite ocular that interest rate will not be hiked by Fed before 2024. This coupled with high inflation is a classic bull case for gold.

Hence, calculated positions can be taken in both silver and gold at current levels.

Current scenario for base metals is bullish and extremely positive for at-least next 3 years.

They are down from their all time highs made in 2021 and are currently taking the heat from dollar Index and risk off trade from US 10 year bond yields, having increased to 1.74%.

In our view, the rally in these metals have started from 2016 and with no significant new supplies coming in, prices and demand should remain elevated.

Its only when the commodity cycle and markets goes in frenzy that people start thinking about ramping up or setting up new facilities, which is not the case right now. This means better capacity utilization and higher realizations for investors and for companies.

We are bullish on base metals for the coming 2-3 years with specific bias on Copper and Nickel.

In India, starting 2020, interest rates have taken a nosedive to promote growth and investment. This is done across the world by central banks and they all have taken a accommodative stance. This calls for an analysis of current scenario in India for debt investment and apt instruments for same.

RBI in its meeting in Feb’21 has kept its benchmark repurchase rate at 4%. Reverse repo stands at 3.35%.

This means that interest rate at which most of the debt changes hand in our country is at very low levels compared to the last many years. Be it a home loan, a personal loan, the average interests have come down and so is the case with the Investor’s return on debt too.

If we talk about AAA or AA category bond paper, it is usually coming with an interest coupon of 4-5%. Of course as we go lower in the bond rating, return will be high but so will be the risk.

Looking at the budget in Feb’21, as the borrowing plan of government has increased by almost 100%, it will ensure that the 10 year interest rate for G-Sec remains and inches up from the level of 5.9-6.2%.

Hence, looking at the above facts, this is a good time to invest in floating rate funds/Bonds to shield us from a rising interest rate scenario in the future. Investors can also look at ultra short term funds having a maturity of up to 6 months as this dilutes, both the credit and interest rate risk.

The week which ended on 19 March’2021 has increased the confusion amongst traders, invetors and every stakeholder in equity market. There is a clear lack of direction in Indian stock indices.

Nifty 50 opened at 14900 on 15 and closed at 14745 on 19’th Mar’2021. This suggests that on a weekly basis, there was only a dip of close to 125points, but the low point of the week was 14350 breaking the previous low of 14500. There was short covering and buying at lower levels which made nifty climb 400 points from day’s low.

Overall, in my opinion and perspective, the trend from short to medium term is down. This being said, long term trend is still up and i would say that the current bull market in India can rush up to 21k in the coming years. However in the short term, it can correct upto 10-11k too. This is coming from valuations which factor in almost perfect execution by companies and almost no risk at all.

US 10 year bond yields is the X-factor in the short term. They are currently at 1.7 and higher they go, higher is the risk aversion and lower valuations for growth stocks.

Hence for the week starting 22 Mar’21, keep an eye on 14350. If this breaks, there can be further affirmation of the downturn.

Welcome to WordPress. This is your first post. Edit or delete it, then start writing!