Nifty Settles Above 8800 For The 1-st Time In 16 Months & Closed The Week By Almost 2.8% Higher Amid "Progress" On GST---What's Next ?

Nifty Fut (Sep) closed the day around 8844, just below day high of 8847 after making a session low of 8794 and closed the week by almost 2.8% higher on sustained FII buying and "visible progress" of GST despite hawkish Fed and tepid Indian GDP.

Technically, now NF has to sustain over 8855-8875* zone for further rally towards 8925-8945/75*-9015 and 9075*-9125-9185 area in the immediate to short term.

Any failure to sustain over 8875 area, NF may face some selling pressure and sustaining below 8825-8785* area may fall to 8745-8675*-8560 and 8480*-8345-8270 zone in the immediate to short term.

Globally the week belongs to Fed after Yellen & Fischer's hawkish statement in Jackson Hole about Fed rate guidance/hike. As a result USD is getting stronger and "risk assets" was under some kind of selling pressure. 

All eyes will be today's US NFP data and weekend G-20 meet. There are also some market talk that in its Sep preview about ongoing QQE in Japan, BOJ may announce some kind of bond purchase tapering and may also introduce new type of fiscal stimulus.

Oil was also under pressure after renewed concern of supply glut and weak ISM MFG data and trading below $44. Any fall below $40 for any reason whatsoever, some panic may come for the global as well as the Indian market.

There was also some concern on "Real Brexit" as for invocation of article-50, UK Govt may not need the Parliament approval and EU/Germany may not allow UK to remain in EU with a significant devalued currency (GBP), caused by the current Brexit uncertainty (backdoor QE for UK without any money printing/bond purchase).

Back to home, despite recent tepid macros (lower GDP, higher inflation, tepid core sector output data and surging fiscal deficit), Indian market outperformed the peers because of its overall political stability, stable economy (Govt is very optimistic about 8% GDP by FY-17 supported by better monsoon, 7-CPC and structural reforms) and progress of GST.

Indian market was also got some support as the Govt is planning to advance the forthcoming Winter session of Parliament by two weeks for smooth passage of GST/debate about final rate and may also place the FY-18 budget by the last week of Jan'17. There are some visible progress about GST implementation too.

Yesterday, Odisha has ratified the GST bill and with this the 50% criteria of states approval is complete and the bill will now go to the Presidential assent. After approval, a GST council consisting of state FM(s) will be formed with FM as chairman and then the standard rate will be decided, which is the most critical one. If all goes well, then after final passage in the winter session of the Parliament, GST will be ready for nationwide roll over by Feb'17. So, looking ahead, all eyes will be on the progress of GST & its politics also.

Yesterday after market hours, RBI released another draft proposal for stressed assets management, which may help banks to some extent along with the Govt's recent draft proposal about disbursal of 75% arbitration award (a huge positive for infra & construction companies). Resolution of stressed assets may be faster after implementation of this policy, but market will also look into more clarity, time frame of disbursal and other fine prints.

Indian banking system, specially PSBS now need effective resolution of stressed assets or NPL/NPA recovery (repayment) and not mere recognition. But as of now actual resolution (repayment) is very tepid.

Indian market got further boost this week, after RBI predicted brighter growth outlook in the months ahead despite virtually no hope for any rate cut in CY-16. As par RBI report, India may grow around 7.6% in FY-17 supported by good monsoon, Govt's capex for infra & expected 7-CPC led demand uptick. But, trajectory of inflation may be higher due to demand supply dynamics mismatch (for food items/pulses) and probable wage inflation (7-CPC).

Later in the week, Nikkei MFG PMI for Aug came above consensus at 52.6, which was also at recent high (since mid 2015). The uptick in the PMI came on the back of surge in fresh orders amid decent pricing power. This, along with the inline with estimates GVA (7.2%) data supported the market despite well below expected Q1 GDP (7.1%).

This week was also "memorable" for the much awaited RIL AGM, where R-JIO plan & pricing and other details were divulged officially. In a word, a new "telecom war" may be started in India and consumers may be happy, but investors are not. As a result, telecom scrips (Bharti, Idea.RCOM) nose- dived significantly and RIL was also not spared later.

Today Nifty was supported by Adani Ports (got NGT clearance for one of its ports in Gujrat), banks (various stressed asset management guidelines by RBI and development of corporate bond market ahead of new Gov Patel taking the charge on 6-th Sep after Rajan exits), Pharma, Autos (better Aug sales figure and forthcoming expected surge in demand led by festival season & 7-CPC led liquidity).

Nifty was dragged today by RIL (R-JIO pain and no withdrawal of KGD6 arbitration), cement counters (imposition of CCI fines).

Update: US economic data (NFP)

The much awaited US NFP (Aug) data came and the headline data (151k) is well below the consensus (180k; prior 275k) with unemployment rate at 4.9% (estimate at 4.8%; prior 4.9%) and average hourly earnings at 0.1% (estimate 0.2%; prior 0.3%).

The bad set of headline NFP data may not be good for US economy, but good for "risk assets" (EQ/Gold/Oil) as "bad news is turning as good news for market/risk assets", because it will "force" Fed to abandon any Sep rate hike plan.

Overall, with today's NFP of 151k, 3 months (June-Aug) average is now 232k against 118k sequentially (March-May); 12 months average rate 204k (YOY: 229k).

Still at over 200k average per month and at 4.9% of unemployment rate, job data is above Fed's comfort level.

Historically, 1-st reading of Aug NFP is always weak because of seasonal factor (in summer, all are busy in sea beach rather than applying for jobs !!) and though there was consensus of 180k, many economists indeed predicted a figure of 150k also. 

Also some analysts are predicting this Aug NFP of 151k to be revised next month to 175k. Thus, today's NFP number may looks bad at first impression but its not ugly too !!

Basically, Fed is talking about 2 rate hikes this year just to pop up the Dec'16 FFR towards 75% from the present level of 50-60%. if all goes well, then Fed may hike by 0.25% in Dec'16 and going forward, we may see only 1 rate hikes per year (every Dec) instead of 4 hikes per year as par Dec'15 dot-plots till it goes to 1.5% by next 4 years or so.

Thus, we may see a blockbuster NFP job data in forthcoming Sep-Oct, just ahead of US Presidential election in Nov in order to give an impression that "all is well" in US and Fed is ready for a Dec hike, if there is no further economic (China/EU) or geo-political shock (real Brexit). 

A poor job data may also increase the probability of Trump presidency to a great extent, which will be negative for the "risk assets".

Sep NFP data may be a perfect caveat for Fed to be on hold with a hawkish stance (talk of dovish hike in Dec).

By early Nov, it will be clear about probability of any "Trumpism"  and depending upon that, Fed has to either hike or be on hold in Dec'16. 

Both may be bad for risk assets and it will be double whammy for Fed in the months ahead. 

Thus, going ahead, Fed has to maintain its current spate of "Hawkish script" (jawboning) as Fed will never act without "telegraphing" the market well in advance.  

 SGX-NIFTY