Inside Story of Dollar Appreciation/BSE Sensex & Union Elections:-

Saturday, June 22, 2013

Inside Story of Dollar Appreciation/BSE Sensex & Union Elections:-

June 22, 2013

Inside Story of Dollar Appreciation/BSE Sensex & Union Elections:-

Greetings from Hitesh! Lot of ink has been spilled over USD appreciation and it’s after effects. Talks are on that FIIs will start selling and market will come down further. We had done detailed study in 2011 about this. This time we had combined it with Union Election and results is eye-opening.

As a regular reader you may find this article a little dry and lengthy, but I suggest you to read with patience. It will do lot of value addition.

For the beginners, let us see what happens when exchange rates changes……

Eg. Is 1 US Dollar is exchanged at Rs.46 then you get Rs.46. Now it is exchanged at Rs.58…..It means you are getting Rs.12 per dollar extra without doing anything. In other words, those who have dollar and want to covert into Indian Rupee…they get 26% extra purchasing power (12/46*100). They can buy more in India with the same amount of dollar. Hope you are clear with this basic.

Who Have USD?

NRIs / Exporters / FIIs / Corporate Investors and those who had converted rupee into USD illegally in the past and now they have USD and they want to convert into rupee again.

Is it a coincidence in last 14 years?

Just read all the periods……

Year 2000 to Year 2003:-

When Sensex made a top of 6171 first time in February 2000, the USD rate was Rs.43.63. The same went to Rs.47 by Nov.,2000 and remained at an average of Rs.48 in 2001, Rs.49 in 2002.By the time of December 2003 it came down to 45 again !!

What happened to Indian Market during this time?

BSE sensex went from 6170 to 2400 in a span of 18 months. In other words…..the situations were most favorable for those who were converting USD to Rupee…they were getting Rs.6 extra (Rs.49 instead of Rs.43) and they can buy Indian shares at 60% discount as Index was down from 6100 to 2400 !!

Conclusion:- Somebody was buying when everybody was selling during this period. Another event worth noting was…..there was a Union Election in early 2004.

Year 2004 to Year 2007:-

During 2004 USD remained steady around Rs.45.25. During 2005 USD remained steady around Rs.44. During 2006 USD remained steady around Rs.45. During 2007 USD dropped from Rs.44 in Jan 2007 to 39 by December 2007.

What Happened to Indian Market During This Time?

We saw Sensex going up from 4000 in 2004 to 20000 by Dec.,2007. Somebody who bought more during 2004-2006, sold heavily from March 2007 to Dec.,2007 and converted their rupee into USD.

How much they made?

(We have assumed they have bought Sensex for the simplicity of the calculations)

Assuming they had USD 100 and they converted during 2001 to 2003 at an average of Rs.47…they would have got Rs.4700 and they would have bought 2 units of Sensex which was at 2400 levels.

Same Sensex would have been sold during 2007 at an average of Rs.17000 and they would have got Rs.34000 for their investment of Rs.4700.

If they had converted Rs.34000 at conversion rate of 2003, which was Rs.47, they would have got approx USD 725. But since the exchange rate was Rs.40 in 2007 they got USD 850.

Conclusion:- They sold while others were busy buying shares and made money in shares market and also in exchange rates.

Year 2008 to 2009:-

Surprisingly, USD rate moved from Rs.40 in January 2008 to Rs.50 in March 2009.  In other words while market was going down…….those who sold in 2007, were investing in 2008 and 2009.

They got Sensex sold at an average of Rs.17000 in 2007 and bought back around Rs.9000 in 2008 itself and also they got 25% higher Indian rupee against their USD.(USD moved from Rs.40 To Rs.50 as mentioned above).

Conclusion:- Somebody was buying when everybody was selling during this period. In 2009 also, we had an Union Election.

Year 2010 to August 2011:-

USD remained steady at around 45 and so our market also…..not much investments and not much selling.

August 2011 to 22^nd Nov.,2011.

From Rs.45 in August 2011, USD touched Rs.52.90 on 22^nd Nov.,2011. During this time market came down from 17900 to 15800 today (23^rd Nov.,2011).

Conclusion:- Panic will be created so that normal investors loses his last shirt and some body will start buying your shares.

What Happened in Mkt.?

Sensex moved down from 20500 to 15500 by December 2011. Once again it is proving our theory that somebody is takeing advantage of USD and Rupee movement with the Market entry and exit.

Year 2012 and Year 2013:-

USD made a high of Rs.53.25 in December 2011, it came down to Rs.49.01 by Feb 2012. From there it steadily moved up to Rs.56 in June 2012. From this level it came down to around Rs.52.50. Since then it has never gone below….it has moved between Rs.53 to Rs.55. In June it made a high of Rs.60 and now it is at Rs.59.30.

What Happened in Mkt.?

During 2012, Sensex moved up by 25%.....from 15454 it moved to 19426. From there it remained steady…..above 18000. In recent past it made a high of 20250 and low of 18250….now it is at 18700.

Now, let us compare these data with Union Election Dates:-

In Oct 1999 we had an election….and we saw the high in Feb 2000. In 2004 we had an election and we saw immediate big fall in market, however, USD was steady from 2004 to early 2007….and market went up. Incidentally, Swiss Banks were forced to publish the names of account holders first time in 2004!! Does this explain a steady dollar and rising market?

In 2009 there was an election….market which was dull  from 2008 to Feb 2009. However, it doubled in just 5 months!!

What is Our Advise?

Read the facts given above…..use your commonsense….if situations were so bad….who invested in 2001 to 2003, 2008 to 2009 and who is investing now?

Once again we are near union election….Dollar has gone up….market has corrected. If we go by the past 3 experiences…..we should not use our brain…..just buy at all levels.

Personal Request:-

Do not get carried away by Media. Use your commonsense. Remember the basic law of investments…. “Buy when others are selling” and also remember, “there is not free lunch”. You must take calculated risk at this moment to make tons of money in coming 12 months.

What Next?

If you need help in finding out the investment opportunities, do approach us.

You can follow me @hiteshmparikh on twitter.

Live With Passion…Invest With Passion.

Hitesh Parikh.