Nifty Fut (Mar): Need To Sustain Abv 7650-7710 Zone For Further Rally

Technically, NF need to sustain over 7650-7710 zone for further rally up to 7750-7800-7930-8005 zone. Otherwise, selling pressure may come and sustain below 7590-7540, it may fall towards 7485-7400-7290 zone again.

Trading Idea: NF-MAR

SGX-NF: 7605

Either sell below 7625 or on rise around 7650-7680-7710;

TGT: 7540-7485-7400*-7290 (1-5 days)

TSL> 7750

Note: Consecutive closing(3 days) above 7750 zone for any reason, NF may further rally up to 7800*-7930-8005*-8055 in the near term (alternative bullish case scenario from the present trading level).

As par early morning SGX indication NSE-NF may open gap up around 7620-7600 area after FED indicated that it may hike only twice instead of four as par previous dot plot. Although, it was widely expected, the overall tone of Yellen was somewhat more dovish than market expectation as FED lowered US economic projection (projected 2016 US GDP from 2.6% to 2.2% and inflation from 1.6% to 1.2% which may be increased above 2% by 2018). 

Overall FED is worried about US wage & global growth (China/Canada/Mexico/EU). As par Yellen's own admission in the Q&A, FED's rate projections (dot-plots) are merely an indication/probability and not a promise for action.

Yellen is also worried about US exports, business investments, drilling activity and not overly worried about effect of higher oil prices on inflation.

Now, all the above FED stands are already discounted by the market including the projected two hikes in 2016 instead of four. Frankly speaking, no one expected FED to hike four times in 2016 and majority of the market participants are expecting either a June hike (before US election) or in Dec'16 (after US election), if FED sticks to its own script and there is no major market turmoil.

Still, FED is talking about two more hikes in 2016, while no other major central bank is talking about it and BOJ/ECB/PBOC may actually lower the rate (QQE/NIRP/ZIRP). 

Thus the talk of policy divergence between FED and other G-10 universe may make the USD stronger in the days ahead and old inverse correlation of strong USD & weak EQ (risk assets) may return instead of flying to the safety of Yen.

After all, even after dovish FED, SPF rallied by only around 1% and now trading around 2020. It need to sustain above 2030-2040 for further strength, otherwise it will come down.   

For our market, RBI may be more dovish after FED stance and may cut 0.25-0.50%  either before Holi or on 5-th Apr. But going by the price action, a rate cut of 0.50% may be largely discounted by the market already. 

Looking ahead, actual rate cut transmissions by the banks, Q4 results and ability of the Govt to carry forward vital economic reform in an effective way will be the keys. Twin balance sheet issues (PSBS and some of the highly indebted corporate groups) and falling popularity of NAMO may be some of the concerns for our market in the days ahead.

Analytical Charts: