Nifty closed almost flat as initial GST euphoria fizzles out ahead of BOE; What's next ?

Nifty Fut (Aug) closed almost flat around 8605 after a moderate day of initial volatility; made a high of around 8631 & low of 8547.

Technically, NF now need to trade above 8645-8695* zone for an immediate target of 8755-8775* and 8825-8875* & 8925-8975 area in the short term.

On the flip side, sustaining below 8580-8540* zone, NF may fall towards 8480/8460*-8330 and 8270-8160 & 8080-8000 area in the near term.

Overall, consecutive closing below 8480 area will pave the way for 8000-7800 zone and consecutive closing (3 days) above 8675 zone may open the gate for 8775*-8875 & 9050-9200 area in the near term.

Today Nifty opened gap up after passage of GST amendments and overnight US market rally (0.23%) supported by better than expected ADP job & oil inventory data, although ISM manufacturing was below expected. There was also some usual morning BOJ/Japanese MOF jawboning to prevent the USDJPY to fall below 100.

But, soon after the Indian market open, there was selling wave as expected as the initial GST phobia fizzles out. Market may be slowly realizing that what passed yesterday was simply some GST amendments to roll out the series of next steps for the much awaited GST and lots of works with various permutations & combinations are need to be done, specially for the most vital part of GST rate finalization. So, its simply, some GST enabling amendments which were passed yesterday and the total GST bill may be passed by the winter session of the Parliament (Dec'16).

A GST rate of 18% may bring some cheers, while 20% may be neutral and 22% might be very disappointing for our market as well overall economy.

As par some reports, even at standard rate of 18% GST, there may be moderate increment in inflation (by around 0.50%) in the medium term because of increase in service tax & incomplete transmission of tax credits.

Although, the Govt is trying to put a a brave face amid extreme media hypes to roll out the GST by April'17, it may be turn out to be a perfect "April Fool" joke as par FM's own admission today as he pointed out that "setting a tough target is always better than no target at all" (for GST April'17 deadline).

But from the overall scenario of various pending process & GST road maps, market will be very happy, even if it will implement from April'18. In reality, due to forthcoming state election schedules and also the 2019 election factor, Govt/BJP may try it to push through 2019 by various delaying tactics (GST= Go Slow Tactics as termed by the TMC !!) as BJP/RSS itself may be not sure about its inflationary impact on the common people (vote bank), immediate effect on the GDP and its 2019 poll prospects.

 

The sudden U-turn of the Cong to support the GST bill at this point of time may also be a well thought strategy to trap the BJP politically as it may be in a catch-22 situation.

If the Govt really roll out the GST by 2018, there may be immediate impact on the inflation and no immediate effect on the GDP as it will take at least 2 years for any reflection on the overall macro economy and corporate earnings. 

Thus going forward, the GST rate finalization will be most important and contentious issue as Cong & other major regional parties as well as the Industry/Govt also favoring 18% rate, while most of the states are not ready for anything below 20% and they are talking about 22-24% standard GST rate!!.

Today Nifty got good support by Tata Steel, Tata Motors and BOB and dragged mostly by Asian Paints, Infy, ZEEL etc.

Metal sectors, specially Tata Steel was in the lime light today after some steep corrections over the last few days as Govt may impose anti dumping duty on some steel products and extend MIP. Also, expected BOE cut (by 0.25%) may be good for TSE as lower GBP will make its assets more attractive. There was some report that its huge pension liability in UK may be lower in the current year, which (pension liability) is one of the major obstacle for its asset sale in UK.

 

Tomorrow may be very volatile for the Indian market as the initial euphoria may fizzle out more and market may turn into reality of stretched valuations. But power of liquidity (ETF) will not permit a disorderly market and will try to support at any cost.