Indian & Global Economy Outlook, USD INR Forecast Using Elliott Waves

Indian & Global economy; USD INR outlook and
Application of Elliott wave for castor price outlook
Paper by
Nagaraj Meda
MD, TransGraph Consulting Pvt Ltd
Feb 18 2017

TransGraph
2© TransGraph Consulting Pvt Ltd Slide
Company Name TransGraph Consulting Pvt. Ltd.
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Competencies Price forecasting,
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Global Economy , Currency & Crude Oil
3

TransGraph
• Falling dollar |Raising Euro | Raising crude oil prices.
• Unexpected bullish impetus to commodities: bullish
impact already in steel, base metals and crude related
products.
• Will it spread to agri?
• Will it trigger further appreciation leg in INR?
• We are engrossed in our demand supply equation in agri
commodities as they are de coupled since last 4 years from
main stream economics!
Global economy: context

TransGraph
Global economy summary
– Euro strength emanated from accelerated growth momentum and strong current account surplus despite
accommodative monetary stance from ECB, highly diverging from that of its counterpart, the FED.
– Subdued inflation expectations for medium to long term while short term rates were continued to be increased by
FED had led to flattening of treasury yield curve in US.
– Further, the passage of the new tax reform bill for a ten year period effective this year, which would put significant
negative impact on US fiscal account for the first couple of years had also weighed on the demand for short to
medium term treasury bonds thus resulted in increase of yields.
– Euro Zone yield curve along with Japanese yield curve remained steep as short term rates are maintained at below
zero levels while inflation prospects for medium term have picked up well. Debt markets priced in very quick
normalization in long term Euro Zone rates as against US.
– For the short term, however, FED shall remain hawkish continuing with the rate hikes while ECB would do any kind of
interest rate normalization only going into 2019 or beyond – Real interest rate scenario bodes well for Dollar
– Continued expansion in Japan GDP even as the government is in fiscal consolidation mode shall bode well for Yen
– Capital inflows into China improved in the recent months, but sharp fall in reserves witnessed earlier shall keep the
government wary on investment flows leading to fiscal moderation

TransGraph
Euro vs Dollar strength despite ECB’s divergent monetary policy stance from
that of FED is underpinned by growth momentum
1.00
1.05
1.10
1.15
1.20
1.25
1.30
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
Interest rate differential vs Currency
5yr yield spread (Euro Zone - US)
EURUSD
Euro Dollar currency pair
has decoupled from
interest rate differentials
in the last six months due
to positive account
balance of EU.
Attribute
US (USD billion) Euro Area (EUR billion)
2010 2015 2016 2017 2010 2015 2016 2017
Goods Exports 1290 1511 1456 1551 1530 2130 2125 2277
Services Exports 563 753 752 778 1154 1541 1556 1621
Total Exports 1854 2264 2208 2329 2683 3671 3680 3898
Goods Imports 1939 2273 2208 2361 1508 1775 1752 1929
Services Imports 409 492 505 534 1186 1566 1561 1578
Total Imports 2348 2764 2713 2895 2693 3341 3313 3507
Total Current Account Balance -495 -500 -505 -566 -10 330 368 391
Nominal GDP 14964 18121 18625 19387 9539 10511 10782 11159
Current Account as % of GDP -3.3% -2.8% -2.7% -2.9% -0.1% 3.1% 3.4% 3.5%

TransGraph
Widening fiscal deficit weighing on short term treasury demand
Estimated revenue effects of modifications to the "TAX CUTS AND JOBS ACT,"
[Billions of Dollars]
Year/Period 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-22 2018-27
Projected impact
on Fiscal account
-135.7 -280.0 -258.8 -220.8 -178.3 -137.9 -120.1 -114.6 -40.6 32.9 -1074.0 -1456.0
Additional effects
resulting from
macroeconomic
analysis
32.2 34.4 36.6 38.5 37.0 40.5 46.5 47.8 35.5 35.5 178.8 384.6
Net Impact -103.5 -245.6 -222.2 -182.3 -141.3 -97.4 -73.6 -66.8 -5.1 68.4 -895.2 -1071.4
Net Impact -571.3 -494.6 -3.5
– The Joint Committee on taxation (JCT) estimated that the bill would add USD 1.4 trillion dollars to federal deficits over
a decade, ignoring any dynamic effects on the economy. Taking into account improved growth, it would add USD 1
trillion to federal deficits.
– While lowering of corporate taxes bodes well for sentiments, with the likely impact on fiscal deficit on account of this
new tax bill projected to be an additional USD 570 billion in the first three years alone debt markets witnessed
pressure and shall continue to do so for short term. (US fiscal budget for 2018 is 4.09 trillion USD)

TransGraph
Continued expansion in Japan GDP even as the government is in fiscal
consolidation mode shall bode well for Yen
– Japan’s OND 2017 GDP was reported at 1.6% YoY (0.5%
QoQ annualized) marking an eighth consecutive
quarterly expansion, the longest since late 1980s
indicating the stability in the economy and also boosts
inflation expectations resulting in expectations of
slightly hawkish BoJ in the coming months.
– While the monetary easing continues from the central
bank, there is significant fiscal consolidation path
embarked by the government
– As the planned deficit narrowed from 8% of GDP in
2014 to 6.2% in 2017, the bond dependency ratio to
fund the budget has comedown significantly and is
budgeted to comedown further in 2018.
2.5%
-0.2%
-1.0%
-0.2%
0.2%
2.0% 2.1%
1.3%
0.5%
0.8% 0.9%
1.5%
1.3%
1.6%
1.9%
1.6%
I II III IV I II III IV I II III IV I II III IV
2014 2015 2016 2017
Japan GDP Growth YoY %
8.0%
6.9%
6.4%
6.2%
6.0%
43.0%
38.3%
35.6% 35.3%
34.5%
30%
32%
34%
36%
38%
40%
42%
44%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Japan Fiscal Account
Fiscal Deficit as % of GDP
Bond Dependency Ratio

TransGraph
Chinese reserves continued to fall; shall lead to fiscal consolidation
-40
-30
-20
-10
0
10
20
30
40
50 Capital flows in EM nations (USD bln)
Bond Equity
Taper
tantrum
US elections
Source: IMF
-650 -519 -850 -1060 -1131 -2355 -3300 -3700 -3638
-1.6%
-1.1%
-1.6%
-1.8% -1.8%
-3.4%
-4.4% -4.5%
-4.1%
-5%
-4%
-3%
-2%
-1%
0%
-4000
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
2010 2011 2012 2013 2014 2015 2016 2017p 2018p
China fiscal balance
Fiscal balance (CNY Billion)
Fiscal balance (% of GDP)
– Although capital inflows improved in the recent
months, sharp decline in reserves witnessed
earlier shall keep the government wary on
investments (4.2 trillion USD in 2015, 3.2 in 2017)
– Moving into 2018, fiscal consolidation in China
likely
– Deficit to be lower at 4.1% of GDP
compared to 4.5% in 2017

TransGraph
Upward revisions for global growth prospects poses well for investor risk
World Economic Outlook
Region
TG Forecast IMF forecast
Real Value (USD
bln)
2016 2017e 2018f 2017e
2018f
2017
2018
GrowthOct’17 Jan’18
World 3.20 3.60 3.50 3.70 3.70 3.90 84049 2942
Advanced economies 1.70 2.25 2.10 2.30 2.00 2.30 48755 1024
Emerging markets 4.40 4.70 4.80 4.70 4.90 4.90 31824 1528
US 1.50 2.20 2.15 2.30 2.30 2.70 17236 371
Euro Area 1.80 2.30 1.90 2.40 1.90 2.20 13658 260
Japan 0.90 1.60 0.60 1.80 0.70 1.20 6142 37
China 6.72 6.78 6.60 6.80 6.50 6.60 10097 666
India 7.10 7.00 7.60 6.70 7.40 7.40 2707 206
Source : IMF, Note: All data in % Change Y/Y, India GDP in FY terms

TransGraph
Dollar Index Price Outlook
EUR: 57.6%
JPY: 13.6%
GBP: 11.9%
CAD: 9.1%
SEK: 4.2%
CHF: 3.6%
US Dollar Index to find support above 87 and rise towards 94

TransGraph
EURUSD Spot Price Outlook
EUR/USD to stay below 1.2650 and correct lower towards 1.17

TransGraph
Real GDP: India to move into top 5 economies
2000 2005 2010 2015 2016 2017 2018f
United States United States United States United States United States United States United States
Japan Japan China China China China China
Germany China Japan Japan Japan Japan Japan
France Germany Germany Germany Germany Germany Germany
China France France France France France India
United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom France
Italy Italy Brazil India India India United Kingdom
Brazil Brazil Italy Brazil Brazil Brazil Brazil
Canada Canada India Italy Italy Italy Italy
Spain Russia Russia Canada Canada Canada Canada
Russia Spain Canada Russia Russia Russia Russia
Australia India Spain Australia Australia Australia Australia
Mexico Australia Australia Spain Spain Spain Spain
India Mexico Korea Korea Korea Korea Korea
Real GDP in 2010 Dollars, Source: IMF and TG Research
– Recovery in economic activity following the demonetization and GST rollout, coupled with improvement in global
business indices shall bode well for long term investments and is further reinforced by the credit rating upgrade by
Moody’s.

TransGraph
India budget snapshot; fiscal slippage shall weigh on FII sentiments and the
domestic currency
Attribute 2016-17
2017-18
BE
Actuals till Dec
2017-18
2017-18
RE
2018-19
BE
Growth %
Revenue Receipts 13.742 15.158 10.136 15.054 17.257 14.6%
Tax Revenue 11.014 12.270 9.001 12.695 14.806 16.6%
Non Tax Revenue 2.728 2.888 1.135 2.360 2.451 3.9%
Capital Receipts 0.654 0.844 0.644 1.175 0.922 -21.5%
Recovery of loans 0.176 0.119 0.106 0.175 0.122 -30.2%
Other receipts 0.477 0.725 0.537 1.000 0.800 -20.0%
Total Receipts 14.396 16.002 10.780 16.229 18.179 12.0%
Revenue expenditure 16.906 18.369 14.624 19.443 21.418 10.2%
Capital expenditure 2.846 3.098 2.366 2.734 3.004 9.9%
Total expenditure 19.752 21.467 16.990 22.178 24.422 10.1%
Revenue deficit 3.164 3.212 4.487 4.389 4.160
Fiscal deficit 5.356 5.465 6.209 5.948 6.243
Nominal GDP 152.537 168.475 167.847 187.223
Fiscal deficit as % of GDP 3.51% 3.24% 3.54% 3.33%
Source: Union Budget 2018, CGA, All units in INR lakh crore unless mentioned otherwise, BE= Budget Estimate, RE= Revised Estimate

TransGraph
Credit growth to improve; better margins for industry including recapitalization
of PSBs shall aid restructuring efforts
8%
9%
3%
7%
9%
14% 15%
6%
9% 10%
5%
3%
-7%
7%
9%
6%
9%
14%
3%
5%
13%
19%
11% 11% 10%
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
India credit growth YoY
gross bank credit Agri & Allied
industry Services
Personal loans
0.80 0.97 1.17 0.54 0.83 1.00
2.93
1.35 0.73
-1.83
1.73
2.40
1.84
0.77 1.28
2.22
0.57
1.00
1.39
1.30
2.26
1.56
1.72
1.80
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
India credit growth (INR lakh crore)
Agri & Allied industry
Services Personal loans
– Industry 27 lakh crores (38%)| Services 18 (25%)|personal loans 17 (24%)|agri and allied 10 (14%)
– Credit growth remained bogged down by the NPA issue at a time when banks were looking for capital enabling
them to be complaint for BASEL 3 norms
– As government and RBI are seen supporting the banks in tackling the NPA issue, higher realizations in the industry
sector is expected to aid credit growth in the coming months
– Credit growth
– 8.5% in FY19, 6.5% in FY18 vs 2.8% in FY17
– Industry credit growth – 8.8% in FY19, 6.8% in FY18 vs -6.7% in FY17

TransGraph
Strong FII and FDI inflows offsetting widening of CAD
*Note: Others include net commercial borrowings, short term loans, banking capital
and other capitals
India Balance of Payments (USD Bn)
Item 2016-17 2017-18p 2018-19p
Current Account
Merchandise trade
balance
-112.44 -152.00 -159.00
Invisibles 97.15 112.00 120.00
Total Current Account -15.30 -40.00 -39.00
Capital Account
FII 7.61 24.00 10.00
FDI 35.61 39.50 42.00
Others* -6.38 13.50 13.50
Total Capital Account 36.85 77.00 66.00
Balance of Payments 21.55 37.00 27.00
Current Account
– Indian basket Crude oil price up by 16% YoY this
fiscal
– CAD to widen to USD 40 billion from USD 15
billion in 2016 -17
• Crude imports higher by USD 18 billion YoY
for April – Jan 2017 – 18
• Gold imports higher by USD 8.5 billion YoY
for April – Jan 2017 – 18
Capital Account
– Strong capital account due to FII and FDI inflows
• YTD FII inflows into capital markets at USD
25.5 billion
– Forex reserves at USD 422 billion, increased by
USD 50 billion this fiscal amid strong BoP shall
remain supportive for Rupee in the long term

TransGraph
USDINR Outlook
Indian Rupee (USDINR) to hold above 63 and rise towards 65.5 to 66

TransGraph
Crude Oil Supply – Demand Balance
– OPEC extending supply cuts till the end of 2018 is
expected to be offset by US crude oil production
growth.
– However, demand growth outpacing supply growth
is likely to keep market tight in coming year
remaining supportive to crude oil prices.
– Moving forward, Crude oil supplies to grow at an
almost equal rate in with demand growth shall keep
supply – demand balance at 0.12 MBpd in 2018
supporting the prices.

TransGraph
Brent Crude Oil Price Outlook
Prices are in Intermediate [C] Wave where in prices are likely to move higher towards USD 75
and then turn lower towards USD 63.00 in the coming 4-6 months.

Castor Seed & Oil Price Forecast

TransGraph
The Elliott Wave Principle
• R.N. Elliot formulated this idea in a series of articles in
Financial World in 1939.
• Elliot believed that the market has a rhythmic regularity
that can be used to predict future prices.
• The Elliot Wave Principle is based on a repeating 8-wave
cycle, and each cycle is made up of similar shorter-term
cycles.
• Elliot Wave adherents also make extensive use of the
Fibonacci series.

TransGraph
Basics
• Although it is one of the best forecasting tools in existence, the Wave Principle is not
primarily a forecasting tool; it is a detailed description of how markets behave.
Nevertheless, that description does impart an immense amount of knowledge about
the market's position within the behavioral continuum and therefore about its probable
ensuing path.
• The primary value of the Wave Principle is that it provides a context for market
analysis. This context provides both a basis for disciplined thinking and a perspective
on the market's general position and outlook.
• At times, its accuracy in identifying, and even anticipating, changes in direction is
almost unbelievable.

TransGraph
Basic wave pattern: Impulse and correction
The Basic 8-Wave Pattern Components of 8-Wave Pattern

TransGraph
Prices turned weak as per the
forecast and fell towards INR 4500
and subsequently bounced back. Our
forecast was absolutely correct.
Our price forecast on 12th Feb’11 (last closing:
INR 5962.50): prices are likely to witness a
sharp downside correction towards INR 4800
while any gains would have limited potential
above INR 6100/6200.
Our forecast in 2011 …

TransGraph
Our price forecast on 14th Feb’12 (last
closing: INR 4142): prices are likely to
witness further gains towards INR 4900
and witness minor pull back towards INR
4200 ahead of turning positive .
Prices continued its weakness after minor
bounce to INR 4250 and renewed weak
momentum and made new low in June
2012. Our forecast went wrong.

TransGraph
closing: INR 3514): prices are likely to find
support near INR 3200 and trade on
sideways to positive note towards INR 4100
ahead of turning lower .
Prices continued its weakness towards INR
3130 as per the forecast and found support
there and traded on sideways to positive
note towards INR 3866 subsequently and
turned lower thereafter. Our forecast
went mostly correct.

TransGraph
find support near INR 3900 and trade
on sideways to positive note towards
INR 5300 ahead of turning lower .
3800 as per the forecast and found support
there and traded on sideways to positive
note towards INR 5350 subsequently and
turned lower thereafter. Our forecast went
100 % correct.

TransGraph
extend further weakness towards INR
3500 ahead of turning positive towards
INR 5300 in the medium term.
3550 and consolidated for couple of months
as forecasted. However the subsequent rally
could only attained INR 4376 in Nov 2015
and turned lower. Our forecast went
partially correct.

TransGraph
Our price forecast during last castor
conference (Feb 12, 2016): prices would
weaken towards INR 2900-2700 ahead of
turning positive towards INR 4000 in the
medium term.
Prices have fallen towards INR 2800 and
consolidated below INR 3000 for couple of
months. Subsequently prices have gained
towards INR 4000 by Nov-2016 and are
turning lower. Our forecast went
absolutely correct.

TransGraph
Our price forecast during last castor
conference (Feb 14, 2017): prices would
hold INR 3400 and trade on a positive
note towards INR 4800 ahead of turning
lower in the medium term.
Prices have gained rapidly towards INR 4850
and turned lower towards INR 4000. Our
forecast went right partially.

TransGraph
Castor Seed Spot (Elliott wave Applied….)
Castor Seed Spot Disa prices are undergoing a downside correction after placing a 6 year high at INR 4850 during March
2017. From Elliott wave perspective prices have concluded the Primary wave 1 at the said high and are unfolding the
Primary wave 2. Moving forward prices are likely to fall towards INR 3800 to conclude the Intermediate wave A and witness
a rise back towards INR 4500 in the coming 6-8 months.

TransGraph
Castor Oil Spot (Elliott wave Applied….)
Castor Oil Spot Mumbai prices after placing the March 2017 high at INR 1073 are retracing back below INR 900.. Moving
forward prices are likely to fall towards INR 840 as Intermediate wave of Primary wave 2 ahead of rising back towards
INR 1000 in the coming 6 to 8 months time frame.

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Indian & Global Economy Outlook, USD INR Forecast Using Elliott Waves

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