Nifty made another day of "Doji" (indecisive candle) as Abe stimulus disappoints and India's fiscal deficit widened despite confirmed passage of GST (amendment)

Nifty Fut (Aug) closed almost flat (-0.21%) around 8664 after a moderate volatile day of 100 points (high of 8736 and low of 8638).

Now technically, sustaining below 8665, NF may fall towards 8610-8460*-8320 and 8270-8145-8060* in the near term.

On the other side, sustaining above 8725-8775* zone, NF may rally up to 8825-8875*-8925 and 8975-9050*-9200 area in the short term.

Global cues today were tepid despite RBA (Australia) cut rate by 0.25% and Abe unveils the much awaited 28 tln Yen fiscal package (both are in expected line).

Global market was not so convinced because there was no mention of any " back door helicopter money" (50 yrs perpetual JGB bonds) and USDJPY broke 102 levels for drifting towards the 100 mark.

Back to our market, apart from the ongoing "GST" news, one of today's headwinds may be drop in consumer confidence (Q1) for India amid rising trend of inflation, job security etc. 

For the last two years, Indian consumers were the highest optimistic in the world and now with 6 point drops (from 134 to 128), it came to 2-nd point, while Philippines is now the most optimistic nation in the World at 132 (average global index now at 98). But this may be a temporary shift as well.

Its now almost certain that GST amendment bills will be passed tomorrow after a day long (5.30 hours allocated in the RS) discussions/debates. As par reports, Cong will support the amendments, if there is "no nasty surprise" in the said draft. 

But the key question will be in what form the GST is passing now and from when it will get implemented ? (i.e. finalized tax rate & the time frame of implementation).

Market as well the business community/corporates will also look into the fine print of the other details, before any decisive movement.

As par some reports, 5/6 amendments will be passed to incorporate in the original GST legislative bill without any definitive GST rates. There may be some "guiding principles" to arrive at a broad consensus rate in future in consultation with various stake holders. Most probably, the whole GST bill will be passed in the next winter session of parliament with a definitive rate.

In this scenario, actual roll out/implementation of GST may be delayed beyond April'17 and further legislative procedures & other formalities like IT infra etc may delay it towards 2018. In the meantime, there will be various state elections and 2019 general election time will also come and eventually GST may be implemented after 2019 election.

If the GST will be implemented after 2019 election, then there will no immediate apprehension of runaway inflation on the overall economy and it will not impact the common people (vote bank). So all political parties including BJP & Cong will play safe and can also take credits for passage of GST as a "significant achievement for the sake of the Nation" in the next series of states as well as general election. 

Thus GST is becoming a more "political game of football" between BJP & Cong as well as for other regional parties too rather than economical/structural reform process or interest of the nation.

Another point is that Indian business, specially SMES are not ready for GST yet and it will take significant time frame for them to be GST compliant after meeting numerous formalities and required IT infra requirements.

So, even if the whole GST bill will be passed by now/winter session, it may not affect the overall macro economy and corporate earnings in the near term, at least till FY:19-20.

Thus passage of full GST may bring some cheers into the market temporarily, but it may not be an immediate game changer.

Market will then concentrate on the Q1 earnings, which may be good overall (in line with estimates, except some stray cases), but not great. 

Earnings growth is not catching up with the valuations and at 8700 Nifty, TTM PE is around 23.85, which is far more than the comfort zone (18-20).

Even, if we assume 17% EPS growth for FY-17, it will come around 427 and in that scenario, FWD PE will be around 20.35, which is also a bit more than the historical fair value (average) of around 17.

So, after tomorrow's GST amendment bill passage, market will probably do a reality check and may prefer to book some profits in longs as the event is almost priced in, considering the recent rally of more than 27% and stretched valuation.

Technically, after GST passage, we should closely watch 8665-8775-8875* zone as a possible area for reversal of the market as a trader/short term investor.

Article Courtesy: Frontiza.com