8 out of 10 guys are saying – Modi will become PM. Will He? A Skeptic's View

March 21, 2014

8 out of 10 guys are saying – Modi will become PM. Will He? A Skeptic's View

Greetings from Hitesh! You have my empathy, if you have missed once in a 5 year Golden opportunity shared on 24^th June 2013. It is a normal human tendency to value the importance of the thing/opportunity/person before they get or after they lose. So, do not curse your luck for missed opportunity. You need to look into yourself. You need to ask some tough questions about your purpose of investments.

Before we talk about Mr.Modi, let us look at past 2 elections.

Past Two Mandates:-

2004:- It was sure from the lehar at that time that BJP will come to the power. However, it did not come and market hit the downward freeze.

2009:- It was sure that no party will get the majority and the mandate will be Mixed. But the congress came and market went up by 2000 point the next day!!

Scenario in 2014:-

8 out of 10 guys are talking about Modi becoming PM. In fact, Goldman Sach had come out with Modi-fy report in Nov.,2013 and now it has given a target of Nifty at 7600!! In fact, FIIs and DIIs are pumping money into share market as it there is no tomorrow. FIIs have pumped in USD 2 billion in March so far and Nifty is above 6500 as on Today.

But, will Narendra Modi Become PM?

We do not know. But let us find out what FIIs are thinking. As per Moneycontrol.com, FIIs did net investment of Rs.71000 crores in Indian Equities from March 2013 to Feb 2014. In the March 2014, till now they have invested about Rs.8000 crs.

There major investment has come between Sep 2013 to Dec 2013 – Rs.52000 Crs.  During this time Nifty moved from 5700 to 6300. In Feb 2014, they did some selling and Nifty made 5991. From 5991 Nifty, it has touched 6500 now, in a month. All due to Rs.8000 Crs. they invested so far in March 2014!

So, from March 2013 to March 2014, FIIs average investment levels can be in the range of 5700-6300. Current Nifty levels are at 6500, so their profit as of now can be in the range of 5% to 15%.(excluding Dollar gain or loss).

What About Dollar Gain Or Loss?

FIIs did major investments during Sep.,2013 to Dec., 2013. So, their conversion rate would be in the range of Rs.61 to Rs.68.

The way FIIs flow is going on, we see USD rate falling  to Rs.57….and at Rs.57, they will have exchange loss of 5% to 15%!!

We draw following conclusions from the above:-

1.   All predictions have failed in last two elections.

2.   This time also it can surprise us.

3.   At this juncture…..FIIs are sitting in profit, but if the USD rate falls, their profit will reduce and they may sell.

4.   To mitigate their losses, either they have to pump in more and more funds at Rs.57-Rs.58 with the expectations of Nifty touching 7600 or book profit to take money out of India.

5.   If they start booking profit, it can trigger further sell off in the market.

   

Where Market Can Go From Here?

Let us look at P/E Theory for the same.

As per NSEindia.com, we had a lowest P/E of 11 and highest 28 from the year 2000 onwards. It is oversold below 14 and over bought near 22. Current P/E is at 18. If it goes to 22, Nifty can touch 7800. (That’s why Goldman has given 7600 tgt !!) And if P/E goes to 28, you can have Nifty above 9000 !!

  

In this case, upper band of Nifty is 7600 to 9000 and at lower band of P/E Nifty can be 5000 to 6100.

So, Nifty has near term bottom at 5000 and near term top at 7600.

My Personal Call:-

We always think ahead of the market experts. So, way back in Nov.,2013, we had written our most circulated article “Effectiveness of Mr.Narendra Modi As A PM & Our Investment Strategy. http://bestofhiteshparikh.blogspot.com/?spref=tw” 

At that time, we had categorically said “Our simple strategy is to buy now and sell before parliament election results are out. The good news is that market will be volatile and you will get opportunities to add at lower levels also. But you need to be in the market to take advantage of the same.”

Looking at FIIs investment statistics given above, if they sell in April - 2014, we will not be surprised. We will use it as a buying opportunity. If they keep on buying and Nifty crosses 6700 in April…..we will start booking profit for the short term.

Alert:- The real money will be made in Stock Specific Investments. We know which stocks have most chances to move up. If you want to take advantage of the same, do join us before 25^th March and be a part of money making investors.

Have a Great Day.

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

Live With Passion…Invest With Passion.

Hitesh Parikh.