Nifty Closed Almost Flat After A Smart Intra Recovery Aided By Railways Clarification About Freight Hikes/Rationalization

Nifty Fut (Aug) closed around 8655 (+0.25%), which is also the day high after making a smart intraday rally from around 8591 (session low). 

Looking at the chart, now sustaining below 8625 zone NF may fall towards 8590/8570*-8530 & 8480*-8445-8305 area in the immediate to short term.

For any further strength, NF need to sustain above 8675 area for further rally up to 8705-8765/8785*-8825 & 8875-8925-9075 in the immediate t short term.

Thus, basically one need to watch 8675 area in Nifty for further trading direction.

 

The sudden intraday selling from around 8640 level today was caused primarily by the report that Railways has increased freight rates by up to 19% across the board. The news came as a bit of shock because of probable negative effect on steel/cement/power (core sectors of the economy) and the subsequent inflationary effect on the overall economy. 

But, shortly thereafter, Railways authority clarified that the it was not a case of freight increase across the commodities, but just a freight rationalization for Coal by changing the distance slabs. 

Its not clear about the probable effect of this Coal freight rationalization on the core sector of the economy, but market may be over reacted without seeing the fine print on the back of 7.74% fall in freight revenue for the Railways in July (YOY).

As Nifty is technically overbought and there was virtually no meaningful correction since March'16, any kind of negative news/rumour may be causing over reaction on the sell side/long profit booking.

Today market was mainly dragged by Bhel (NTPC order issue), BPCL (talk of 5% excise duty imposition on petrol & diesel), HPCL (Q1 GRM drop), Tata Power (below estimate Q1 result for FX loss & Ind-AS issue), Tata Steel & also JSW Steel (railway freight issue for Coal).

Nifty was supported primarily by Idea (talk of merger with Vodafone), BOB (ahead of PSBS meeting with the FM), INFY/TCS/Wipro (short covering in IT packs after last few days selling and clarification by INFY about the lay off news).

There were also some news that Govt may postpone any immediate SUTTI sale (positive for Axis Bank, ITC).

As par some analysts, of late, US market is consolidating in an extremely narrow range and this may be an indication of "silence" before a "storm" as bond yields are recovering from their life time lows and liquidity may revert to bonds again from equity.

Globally, there was not so much cues today as BOJ chief did not talk about market/FX in his scheduled speech. EU market also trading in a sideways manner after EZ PMI index came at 7 months high, which is although encouraging, the underlying data may also suggesting that, overall sluggishness in fresh manufacturing order books and a dip in service sector may led to tepid hiring activities in the coming months amid muted inflationary environment.

Oil is also under some selling pressure after export data of China and US oil rigs number. Also, Saudi comment that they are pumping at life time high level before any production cut/freeze on Sep and "Niger Delta" ceasefire offer (in Nigeria oil fields) dampened the bullish sentiment of the oil.

Despite recent hawkish stance of various Fed members about rate hikes in Dec'16, no one seems believing in Fed and there is visible USD selling across the board and that may be one of the reason for recent divergence in USDJPY & 10Y TSY apart from light trading volume amid summer doldrums in US/EU.

All eyes will be on Friday's Yellen speech at Jackson Hole Annual Symposium for a hint about probable Fed rate movement in 2016. But for any real Fed rate hike expectation in the market, FFR need to be in the +70% range, while its is just around 50% as of now (for the Dec'16 rate hike probability). 

As market is too complacent about Fed rate hike and not ready for any Fed rate hike in 2016, any hints of even "dovish hike" in Dec'16 by Yellen may cause significant turmoil in the global as well as Indian market.

Yellen may deliver a more hawkish script than the market expected this time just for the sake of regaining Fed's lost credibility.

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Nifty Fut-I