Nifty Dropped Slightly As It Was Dragged By IT, But Supported By Metals Amid Speculation Of Rate Hike Ahead Of FOMC Minutes

Nifty Fut (Aug) today closed around 8631 (-0.33%) after making a day low of 8610 and high of 8690.

Looking ahead, sustaining below 8590 zone, NF may fall towards 8540-8480*-8435 and 8325-8245*-8175 area in the immediate to short term.

For any strength NF has to sustain above 8675-8695 area for an immediate target of 8725-8785*-8825 and 8875-8950-9075* area in the days ahead.

Today's morning Asian cues was tepid as US market closed yesterday around 0.45% lower. Yesterday's US economic data was largely below estimates or bad (Core CPI, Building permits), but housing starts was good and subsequently USDJPY broke 100 level briefly. 

But, be it a pure co-incidence or deliberate verbal intervention, two prominent Fed members (one is also a non-voter this year) called for an immediate rate hike as early as Sep (!!) citing US economy is doing moderately well. 

Although the comments helped the BOJ to avert a USDJPY meltdown, global as well as US equity market apparently did not like the idea of Fed rate hike and subsequently there was mild selling pressure across the board.

All eyes will be on the FOMC minutes tonight to have an idea about different Fed member's thinking about health of US economic recovery (modest to moderate) & "risk" factors for the global economy (like Brexit, China, Oil etc).

As par some reports, although latest US Job reports (NFP) is painting a rosy picture about health of US economy (around 200k average payroll with 4.90% unemployment rate), the same is coming on the back of reduced participation rate. Many of the US job aspirants are not applying for jobs in desperation, lack of required skill and shrinking job opportunity because of automation and artificial intelligence. If one take this participation factor, then the real unemployment rate in US should be around 7.5% and not below 5%.  Fed is also very much aware of this factor and going forward, they may be in the side line even in 2017 despite so much drama (verbal intervention as a strong currency may be also equivalent to some interest hike to some extent in an economy).

Another factor is that despite "blockbuster" NFP numbers and modest hourly wage growth, the same is not converting into any type of wage inflation, which can boost up the US consumer spending and core inflation. Thus, there may be a question of efficacy about Fed's decade long QQE on the real street and this may be the one of the prime reasons, Trump is a serious candidate for the US Presidential election, despite so much loose & irrelevant talks (but this may be a well planned strategy also on the part of team Trump).

Back to Indian market, there was no fresh drivers or news flow to pop up the stocks and market is undergoing for some long profit booking/fresh shorts for the last two days.

IT counters were in great selling pressure today as US rejected the reconsideration appeal for the increased fess of job visas after yesterday's renewed Brexit (real) fears.

Steel counters were in limelight today as Moody's upgrade the Indian steel sector citing increased domestic demand (because of infra spending & expected incremental GDP growth) and supportive Govt (MIP/ASD protection). As par Moody's, Tata & JSW steel may be the major beneficiary as they are in the process of capacity addition.

But, still India is a steel surplus country (around 10MT demand supply mismatch at present) & globally, there is no dearth of steel either (like oil. steel demand supply dynamics mismatch may also be another by-product of QE) and no country can run on unlimited protection measure as it may have an opposite repercussion effect. So, irrational exuberance may not be good for expensive steel stocks either.

As par some global analysts, India is too much occupied with the politics of GST (although its not a done deal yet before 2019 election). There are lots of reform which should be done by the Govt, such as land, labour, FDI in retails, logistic infra, resolution/recovery of huge NPLS apart from recognition (pain of twin balance sheets), judicial reform, ease of doing business, consistency & predictability of tax rules/other policies etc. 

As par some reports, Govt may be considering a standard RNR of GST as 22%, which is much above expected rate of 18%. As an alternative, Govt may be also thinking about 4 slabs of GST (6/12/18/40%) ranging from essential to luxury items/tobacco/Alcohol. Moreover, As par Govt sources, April'17 GST roll out may not be possible/feasible with five states going into election mode and there may be immediate impact on the inflation.

Market is not ready for either GST @22% or any delayed roll out after 2019 election. Also, with four tax slabs for GST, its may not be a "One India One Tax" concept and with SGST+CGST+IGST, it may bring more chaos and lack of compliance.

Its may not be possible to be revenue neutral for the states and lowering the net tax burden on the economy/people both at the same time and thus a "No GST" may be better than a "Faulty GST".

In a bull market driven by liquidity, although no body cares about it, market will began to talk about these, once we have 5-10% correction in the index---investors may stay alert if Nifty broke the 8480 level convincingly in the days ahead.

SGX-NIFTY