Predictions have a simple way of deceiving. They take longer than we think to actualize. A recurrent lesson that we learnt making predictions was that we almost always ended being early. An early prediction isn’t wrong. It simply takes more time and patience to make a prediction work.
Our market prediction for 2013 is centered on the following five elements.
A. Inflation
B. Liquidity
C. Exchange rate
D. Interest rates and
E. Commodity prices
How these five elements play out during the year and their inter-play will decide where the markets end in 2013. We expect inflation to drop, liquidity to rise, exchange rates(rupee) to gradually rise, interest rates to drop and commodity prices to soften. Our expectations on these five elements could get delayed to actualize. But, the trend seems to be firm for these predictions to come true. When these predictions fall firmly in place, the markets will probably be in the grip of the bulls. But, We don’t expect the elements to turn around drastically. It will be a slow grind for our economy from the brink where we find ourselves in.
Why should one invest now when the economic recovery looks like a long grind?
Being early is not bad. Experience has taught us that much. The markets are an imperfect place. And, these imperfections always threw opportunities at us. These opportunities ultimately turned over the major upsides to our investing. Here is how.
The upside of being early is that one always had enough time to buy equities. And, to stock them up in large quantities. Early Believers almost inevitably never missed out on buying enough equity before every Bull Run. As for ithought, we were always fully invested before every Bull Run. Our secret of being fully invested lies in starting early.
Investing when the economy is down to ensure that enough buying happens before the recovery. Buying before the recovery ensures that the valuations ultimately turn out in one’s favor. Buying early also helps Investors to stay invested for longer durations as patience gets ingrained in the investment process.
The investment context in 2012 & 2013.
2012 was a year when equities performed well. We believe this performance reflects the belief that the worst is over. From believing that the worst is over, investor perception needs to gradually move to a point where one feels that the best is about to come. 2013 is a year when we will realize the end of the worst economic phase. The economic trends will brighten as the year progresses. Pessimism will decisively be put behind. Optimism will make an appearance. Essentially, the markets will consolidate within a range.
Strategy Outlook.
Investors must further build their equity books, scale up their equity exposure, and prepare for the optimistic phase to hit the markets. The time to feel over-optimistic still looks distant. But, waiting for that moment would make your returns very ordinary.
Buy into pessimism. Watch pessimism recede and Optimism surface. Wait for optimism to grow. You will find yourself in the middle of a bull run. But, ensure that you don’t get left out one more time.
Wish you a happy and prosperous new year.
Shyam Sekhar,
Founder, ithought.
