Nifty Gained By Around 0.80% Amid Doubt of "Real Brexit", BOJ Jaw Boning & 7PC Booster

Nifty Fut (June) closed around 8204 after making a low of 8155 & high of 8215.

Technically, for the expiry date tomorrow, NF need to sustain above 8225 zone for an immediate target of 8275-8340 area.

On the flip side, inability to sustain above 8225, NF may face some selling pressure and may fall up to 8155-8105 & 8075-8000 zone for tomorrow.

 

Today Asian morning session started with the same old "jaw boning" from the BOJ official and as par various reports, they had already intervened two days ago in a small way, when USDJPY was around 100 level. Subsequently USDJPY surged towards 103 zone and with that, we are witnessing some "risk on" trade in the global as well as Indian market.

As par various reports, probability of "Real Brexit" is now very low as of now and in the foreseeable future at least until end of 2017 because of ongoing political turmoil in UK. Article-50 will be only invoked by the new Govt/PM after Oct'16 (if at all) and then a fresh general election may be called with the main theme of this "Brexit" and only after invocation of the Article-50, formal negotiations with EU will start for any "real Brexit" or for getting "better terms".

In any way, although this type of public referendum of "Brexit" may put pressure on the UK Govt to act, but its not legally binding. So, all these will delay the actual process of UK exit from the EU by at least 2-3 years and till then there will be considerable uncertainties both on the "Wall & Real Street".

Looking ahead, UK Conservative Party's leader election/selection and their tone for the "Real Brexit" & BOE statement may be the driver tomorrow. 

There is also some market talk that FED may unleash QE4 as an excuse of "Real Brexit" and threat of another "US Recession".

Today as par expectations, Govt approved 7-PC recommendations, which entitles 20-25% salary hikes for nearly 1 cr central Govt & pensioners and payment of arrears in tranches. The overall structure of 7-PC & staggered nature may be more beneficial for small & mid ticket size of consumption than high ticket (like real estates etc). Subsequently, stocks of autos (specially Hero Motors/TVS in 2-W), consumer durable (such as Voltas) jumped today amid hopes of higher disposable income and more discretionary spending after salary hikes. 

Residential real estate may get a boost only if there will be larger arrears one time pay out.

But, this 7PC induced liquidity may also pose a risk of higher inflation in our economy, if consumers really indulge in the expected buying spree. 

Also, with the central Govt implementation of 7-PC, other states will have to increase their salary structure for the state Govt employees also without any increase in productivity. This may put immense pressure on the overall combined fiscal deficit of our economy, but it may be a $50 bln stimulus package for our economy also. Travel & tourism may also get some boost for this 7-PC.  

Any way. in the short term, we may see big boost in the small ticket consumption (if those central Govt employees really spend as expected after getting more money in hand) and apart from the above sector, financials may also benefit significantly, because lack of adequate consumer confidence and concern for future generation, may force majority of the surplus money towards savings & investment related financial instruments (mostly insurance & fixed income products along with some moderate risk instruments, like MF etc).

As par some calculation, 7-PC induced liquidity may boost consumption by around Rs.50000 cr, savings by around Rs.30000 cr and GDP by 0.5% over the period of 2-3 years. Govt may also earn incrementally higher by ways increase collection from indirect & direct taxes.

Today Govt also passed the Model Shops & Establishments Act, which may pave the way for 24/7 malls, restaurants, multiplexes etc and combination of this with 7-PC hope, retail stocks also jumped (Shoppers Stop, Future Ent etc).

Metal & mining stocks also rallied decently after Govt cleared National Mineral Exploration policy (also a know factor, but need to go through the fine print also).

Notably, DLF jumped big after reports that the promoter family will infuse around Rs.10000 cr by way of preferential allotment from the expected stake sale proceeds of its rental arms (known factor) and also residential projects. But there is also some doubt about the actual amount of stake sale and nature of disbursements (at one tranche or in a staggered manner). As of now, DLF is expected to raise around Rs,15000-16000 cr by selling stakes and its overall debt is around Rs.22000 cr.