Friday, July 17, 2015

Bad days for Oil & Gold are good days for Rupee. And why buy Tourism stocks now?

Gold is an alternative currency. Gold is an alternative to fixed investments. Gold protects the value in the times of inflation. Gold’s value is decided by these three factors primarily and they are not favorable to Gold now.

The reserve currency US Dollar is becoming stronger. US Fed reiterated its commitment to raise interest rates from near zero, meaning fixed investments will make a comeback in the world’s biggest economy. Many countries are worried about deflation than inflation now.

All of that is taking the air out of Gold.

Gold is trading at a crucial point now. It is giving enough signals to drop down to its strongest support levels at around $980-1000 per troy ounce. That would mean almost 15% drop from current price levels.

With Iran coming back into the market, oil supply is increasing further. So fuel (petrol & diesel) prices are likely to offer some more relief for us.

And this is all good news to Rupee as Gold and Oil are biggest components of our imports. When the trade deficit comes down, outflow of Rupee reduces. That would mean RBI need not go on buying dollars from the market. If they reduce some of the forex reserves (though it is not in their plan), Rupee can comfortably come back to Rs. 60 a dollar. If RBI does that it is a bonanza for Indian consumers and if not still there is a relief.

Reduced oil and gold prices and Rupee not devaluating helps in reducing inflation. When the inflation slows down there is a case for reducing rates. Both will leave more money in the hands of consumer. His spending power gets better. The corporate will see their bottom line improving in the same proportion and that helps NPA situation in banks too. Reduced deficit and lower rates will help Govt. function efficiently. All this will boost the economy. If inflation and interest rates come down by approx. 1% from current levels, they may translate into 1-2% higher growth rates in GDP. Our finance minister’s expectation of 10% growth may become a reality in 2016. And it is just few months away.

But do not buy the capital goods or the steel sector hoping that there will be a new investment cycle beginning soon. There is lot of overcapacity there, utilization has to go up first before the new investments come in, which is few years away.

What likely will get better are those sectors which are closer to end consumers. E-commerce sales will see a new peak in 2016. Car sales will come back. Hotels and restaurants see rushes they have not seen in the last five years. Airlines will fly at full capacity. With India opening up to foreigners with visa on arrivals and Indian citizens having more money in their pockets, tourism will see a renewed interest. 

In the stock market, we should get in before the mass does (that is in 2016), so I am looking for investments opportunities now. Do you follow any company in Tourism sector? Can you share some details?