Nifty closed flat after some selling pressure amid "ongoing confusion" over passage of GST; What's Next ?

Nifty Fut (Aug) today closed flat around 8688 after making a high of 8747 and low of 8624.

Technically, now sustaining below 8665, NF may fall towards 8605-8565*-8460 and 8305-8270*-8135 in the short term.

On the other side, sustaining above 8725, NF may rally up to 8775-8810-8875* and 8975-9050*-9200 in the near term.

Today, Nifty started with a positive momentum amid steady global cues. Friday's tepid US GDP (+1.20%), although may be a bad news for US economy, its a good news for "Helicopter Money" & risk assets and Fed may not think about hiking rate before Dec'16.

Today's morning China PMI data may also indicated that Chinese economy may be recovering slowly (from manufacturing to service based economy).

Indian PMI was also good at 51.8 in July against prior 51.7. But a good PMI data may also undermine the immediate rate cut probability by the RBI.

Overall EU PMI data was also good except UK, which came below boom/bust line of 50 at 48.20 (estimate/prior 49.1). There is no doubt that Brexit related uncertainty took a toll on the UK economy in July, but with no immediate "Real Brexit", market is expecting the UK PMI to rebound in the next few months.

Despite positive cues from the global market, Indian market came under sudden selling and fall by around 1.4% at one time from the day high, before recovered by some extent to close flat.

Some of the primary reasons for today's intra fall may be:

1. Below expected/bad Q1 results from the index heavy weights like L&T, ICICI Bank. Apart from these two counters, Bhel, BOB. Adani Ports are some of the Nifty counters, which dragged the overall market. Bank Nifty was also weak today and helped to drag the overall market significantly because of NPL issues and lower probability of any Aug rate cut.

2. IT counters today gave some good support to the market as some Japanese long only fund was in the bidding mode in these counters.

3. Although, metal counters was initially under some pressure, they recovered smartly in the late trade after supportive Steel minister and MIP may be extended post Aug along with some other bail out packages for the "ailing" steel industry, who owes around Rs.3 lac cr NPA to the Indian banking system.

4. Pharma was under some pressure after the drug pricing authority bring some more drugs under price control list.

5. Market was in some confusion about the form of GST which will be passed in the current monsoon session. Is it simply the amendments which was recently approved by the cabinet or the total GST bill along with GST rate and other issues ?

6. As par the latest reports, Govt will move the 4 GST amendments on 3-rd Aug (Wednesday) in the RS for discussions and passage. There may be four GST rates (12-18-25-40%) ranging from essential items-standard items-automobiles & items for "sin tax" (tobacco).

7. Market may be still in some confusion unless & until it get clear idea about the whole GST format and in what form its getting passed now & the likely date for GST roll out. If the Govt sticks to the April'17 deadline for implementation, there may be some exuberance, but if its getting delayed beyond 2019, the initial euphoria may end soon.

8. As par last Friday report, Govt will release the full arrears of the 7PC in one shot with the Aug'16 salary of the central Govt employees. Although this may act as some "Indian version of helicopter money", it may also accelerate the fiscal deficit of the Govt significantly. After the centre 7PC, all the other states will also be bound for similar salary increments for its state employees and together that it may also create more wage inflation in the Indian economy beside some serious fiscal strain.

Meanwhile, India's June core sector growth swells as 5.2% for June against 2.8% in May. But as said earlier, a good set of economic data may also help for the RBI to wait & watch before any rate cut in Oct'16.

RBI also released fresh guidelines for universal banking licenses and this may bring some cheers for the NBFC(s) and brokerages as this time RBI seems to be more realistic & liberal. So, more private banks may be coming to India and competition will intensify. But full banking is a serious business, which required huge capital also. So, only selective groups may apply this time, who are really serious about banking foray. RBI may also impose some kind of fines, if an applicant withdraws later after procession and getting a license unlike some previous incidents, where some applicants withdrew later.

Tomorrow or day after tomorrow, Japan is also supposed to unleash its "Helicopter Money" for an expected 28 tln Yen stimulus package. Market will keenly watch its actual form, but one thing is clear that anything below 20 tln Yen may cause the USDJPY to crash below 100 level and risk trade will be in "off" mode for quite a days.

So, in the days ahead, we should have some "exciting" (volatile) market together with Abenomics (QQE) and ongoing GST news flows/actual passage.

Further GST Update: 

As par reports, almost all the political parties including Cong & Left will support the GST amendment bill to be tabled on 3-rd Aug in the RS. But it appears that still there is no broad consensus on the crucial GST rate. Both state & central Govt do not want to loose any revenue from the present level and the Govt is also not ready for a single rate of 18%.

As par the report, in the present GST amendment bill, there may not be any definitive rate, but only some "guiding principle" regarding the "revenue neutral rate". This essentially means that the present GST amendment bill may be passed without any definitive rate and the actual rate may be decided later, most probably in the next winter session of the Parliament.

Passage of GST bill without any definitive rate will be like "driving a car in the night without any headlights" and in that scenario, the Parliament/RS will have to pass again the GST rate (another amendment) in the next winter session after a broad consensus with all the GST stake holders.

This inevitably means that, it will be virtually impossible to roll out the GST from the scheduled Apr'17 and it may be implemented only in 2020 (after 2019 election).

Article Courtesy: Frontiza.com