I am positively biased about the 2012 Mayan end of the world time window. We are in an economic crisis of a lifetime, where finance itself is under attack. We have seen inflation, destruction of the real value of money, worst performance of stocks in a decade, volatility, higher food prices and exponential gold prices. Call it another coincidence but this is great Mayan timing, isn’t it? But, why am I positive?
Let’s first look at how we did in 2011. We made a number of statements during the year, starting with a January prediction of the Sensex erasing 30 per cent (from the 2010 highs). This was followed by a February article which indicated we were not looking at a Nifty above 5,800. In March we said the upmove of NSE’s Bank Nifty should complete the 12,000-level, after which the next down leg should begin. In April, we said India was likely to continue underperforming global peers, in October, in a piece on top short ideas, we talked about why you should not buy Reliance.
Markets retraced almost 30 per cent from the November 2010 highs. The NSE Bank Nifty collapsed from 12,000-levels. Most of our top short ideas delivered and Nifty reached 4,544 lows as we close 2011.
How will India perform in 2012? From the sentiment point of view, BRICS, touted as a story for 2050, is now claimed as broken. We talked about broken BRICS as early as 2008. It was then that we said India and China were consumption markets and that while Brazil and Russia were commodity linked, they could not be bundled together. Now, while India is reeling under poor performance and the Brazilian economy has overtaken UK’s, peer performance gets polarised. We even have new experts talk about India and China as concerns. These are sentiment extremes, which confirm that unlike tops, only bottoms are a cause of worry.
Fundamentally too, we may not be as attractive as 2009 lows, but do you think long-term value pickers wait for everything to get attractive before they start buying? And, do you think value pickers are so concerned about the end of the world? Value pickers consistently make money spotting low-risk opportunities and holding them patiently. Even if the world comes to an end, value pickers would invest out of habit. For us a sub-4,500 Nifty, nearing 4,000 is a screaming buy irrespective of anything. We also have a few technical reasons. Corrective looking multi-month fall, Fibonacci supports, Primary 4 wave running flat, 3.3 year bottoming Kitchin cycle, Benner Cycle lows, primary bottoming momentum, sideways consolidating structures in auto and healthcare, technology testing true trendlines, etc. The bottom may happen next week or the coming quarter, but when it happens, everything is going to rocket up to historical highs. And, the worst sectors — banks, power, real estate, oil & gas — will be the new best performers.
So, what’s the 2012 global outlook? Commodities finally started to show some cracks as the dollar strengthened. This is good for the equity bottoms in a way, as commodities get time to consolidate and the equities are revisited. We are commodity bulls and are still looking for a commodity-driven bull market. On the other side, we have a consolidating structure on the Dow which is barely 15 per cent away from all-time highs. When that happens in 2012, equity bears might not get time to change clothes.