Nifty Fut (Sep): 8200-8325 Is Still On The Card, But It Has to Sustain Over 8075

Global Equity Market Not "Happy" Even After "Dovish Hold" By Fed---

Is It Only About Fed Uncertainty Or Something Else ? 

Fed Knows Something More Serious That We Don't Know!! (About China) ?

Trading Levels :

SGX NF:7925 (LTP)

NSE NF:7965 (LTP)

	SL (+/-) 10 POINTS	FROM SLR
	Intraday Swing	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	7880		7900-35*	7970-97	8043-75*	8110-45	8190-270	<7860
Weak <	7860		7844-15*	7790-66	7745-15*	7665-32	7585-40	>7880
FOR	Conservative	Positional	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	7880		7935*	7997	8075*	8145*	8270	<7860
Weak <	7860		7815*	7766	7715*	7632	7540	>7880

  

There's a line of thinking after yesterday's paradoxical movement in the global equity market that even after "dovish hold" by Fed, is it pure Fed uncertainty or something more worrisome about China jitters, which we don't know, but Fed knows ?

Other explanations may be, there were option expires yesterday and Fed worries about global growth created some risk aversion and its also hard to down the USD.

In any way, the "Dovish Hold" by Fed  might be already discounted by the market for the last few days prior to Fed decision and it may be another case of "buy the rumour and sell the news".

Global market may likely to consolidate next week and will look forward to the forthcoming events. There will be many excuses for Fed for not opting a lift off in Oct (no possibility) or even in Dec'15 either. It might consider 0.25-0.50% hike in 2016 with lots of caveats but that too looks very remote considering Fed Fund Rate & Fed Dot Plots. 

Apart from tomorrow's Greece election, there is ghost of Oct "shutdown" in US. There will be also UK referendum for EU in March (as par reports) and that may create more uncertainty in the ECB, which may force Fed to defer the lift off later. By that time, US presidential election will also be near (Nov'16) and Fed will not attempt any experiment with rate (Hawkish Hike). 

Thus, it may take up to 2018 for Fed to return to normal interest path, if at all (max 2-3%)!!

Actually, it seems that Fed is not so confident about US economy, given its dual mandate of maximum employment and reasonable inflation (2%). Although headline unemployment number (5.1%) looks good in US, wage inflation is not there (tepid trend in hourly wages) and participation rate is not great (a large demography is out of work force and is not doing any job search at all). Thus it will take probably some more years to be normal in US. 

Another thing is that USD is relatively very strong for the last one year and that too is hurting US economy. A rate hike at this moment will aggravate the situation further. Fed will systematically choose the "verbal intervention" path to control the strength of the USD as 1% currency strength is almost equivalent to 0.25% rate hike in an economy. 

Therefore, Fed, along with ECB/BOJ/PBOC will ensure enough global liquidity and other monetary stimulus  (QE) in different forms in the days ahead and will also not allow any disorderly movement  or so called "Dooms Day" in the global financial market. 

"Risk" trade will be "On" in the years to come and global central bankers will help to ensure structural reform by keeping the monetary stimulus on.

Back home, it seems that despite "Dovish Hold" by Fed, RBI Gov is not so happy and still maintaining his hawkish stance. Although its now almost certain that RBI will cut rate by at least 0.25% on Sep-29 (if not 0.50%). 

Our market will also start to discount the 0.25% rate cut from next week and will likely end up near 8125-8200 level before RBI policy meet, a mere 0.25% rate cut will be taken as too little & too late. At least 0.50% rate cut and some other CRR/SLR/MSF tweaking idea might bring a meaningful rally towards 8355-8675 zone in the near term. 

Apart from proper transmission of RBI rate cuts by banks market will also keenly watch their base rate calculation methodology & its impact on future NIM (as par new RBI draft proposal by marginal cost of funds). 

Also near term liquidity in PSBS will be most vital, when demands for corporate loans expected to rise significantly in the coming months. 

As par some early opinion poll, it seems that BJP/NDA is ahead in Bihar, but it may be a close contest  as par various other reports. Also, SP is forming 3-rd front in Bihar along with some other parties, might be beneficial for BJP also (cross voting). 

Ultimately, too much should not be read out in Bihar elections as even with all the RS seats there, BJP will be far away from required majority in RS till 2019 !! 

Although, Bihar election can be termed as "acid test" for NAMO/Modinomics and a clear majority there may change the overall gloomy sentiment, going ahead, Govt/BJP will need specific political management, some compromise with Cong and back door talks with other oppositions to pass important reform bills (such as GST) in the RS/Parliament. 

If insurance bill could be passed in RS, despite no BJP majority there, the GST bill can also be passed. 

After Bihar poll, winter session of Parliament might be called early for an immediate passage of GST as after Bihar verdict, both Cong & BJP may need to modify its "marketing strategy" to catch votes. 

Also BJP need to believe itself for its economic reform agenda to be implemented more boldly. There are many scope of other reforms which do not need Parliament/RS approval/legislation.

Land bill, being a very politically sensitive issue, may also be put in state subject for each state's own specific legislation, subject to central approval and competition among various states for attracting investments will take care of the rest.

Thus, looking ahead, better corporate earnings may be supported by lower bank rates transmission, incrementally higher consumer & govt spending, depressed commodity prices, better operating leverages amid stable global markets and by FY:16-18, Nifty real EPS might be in line with street estimate of around 425-510 & 650 from present level of 361. 

In the that scenario, FY-15-16 & 17 target of Nifty will be around 8325-9200 & 10300.

  

Technical Chart & Analysis:

Although in daily chart, we may be in the new cycle of wave1 (after 1-5 & A-B-C completion of the last cycle), in monthly chart, we are still in corrective A (projected target of around 5540 is already achieved).

For the bigger picture, confirmation of completion of wave A might come only after Sep-29 (RBI policy date).