Nifty Tanks By Almost 2% On "Surgical Strike" By India On POK "Terror Hubs"

Nifty Fut (Sep) today closed around 8591 (-1.92%) after making an opening high of 8802 and session low of 8562; overall Nifty closed almost flat for the Sep exp series.

Looking at the chart, price action suggest that for tomorrow (30/09/2016), Nifty Fut-Oct (CMP: 8644) has to sustain over 8573-8535* area; otherwise, NF may fall further towards 8470-8405*-8350 and 8310/8270*-8205/8185-8145/8025 zone in the immediate to short term.

On the other side, for any strength, NF need to sustain over 8655-8685* area for target of 8725-8785/8805-8845/65* and 8905/35-8975/95*-9025/75 zone in the immediate to short term.

Today, Indian market opened in a positive note supported by global cues amid OPEC announcement in oil production cut; but later succumbed by the official confirmation of surgical strike by the Indian Army into the POK terror hubs.

Yesterday, OPEC announced some production cut which will be effective from Nov after some finer tuning for the overall mechanism for this cut by OPEC countries. 

Although, there may be significant doubt about the effectiveness of this OPEC agreement in the long term on the dynamics of supply & demand, a rally of oil above 55-60$ may be negative for oil consuming country like India.  

Technically, Crude has to sustain over $47-52 for further rally towards $65-75 zone.

A strong oil may be good for ONGC/Cairn and partially for RIL, but it will be negative for overall macros of Indian economy as inflation and CAD may surge, which may also force RBI to take a hawkish outlook going forward.

Yesterday's Yellen and Draghi testimony offered nothing new and from the overall statements of various Fed members it seems that, if there are no unexpected geo-political shocks, Fed will hike in Dec.

For the last few days, Deutcshe Bank (DB) news flow was affecting the global as well as Indian mkt. As par some reports, DB has sold one of its EU insurance arm and German Govt may bail out it for the huge fine of $14 bln imposed by the UD-DOJ. DB is viewing as too big to fall and a systemic risk. Although, German Govt and the DB CEO officially denied the bailout rumour, it's hard to believe that DB will be allowed to sink and thus global market had a sigh of relief.

Back to the Indian market, the surgical strike by India on the Pak/POK terror hubs along the LOC in response of the Uri terrorist attack surprised the Indian market & soured the sentiment significantly and the market tanked. 

Though such surgical strike was not at all unexpected amid warmongering media hypes, market was relieved by some extent for the last few days, keeping in view various counter diplomatic measures taken by the Indian Govt. 

But the sudden strike by the Indian Army into the POK, may be further escalated into a full blown military conflict and possibilities of various types of terrorist attacks in India in the forthcoming festival season. In the previous Kargil war, Nifty lost almost 10% for the Geo-Political tension.

After initial panic selling, Nifty recovered smartly almost by 100 points as the finance ministry assured that the present surgical strike being a decisive one will be helpful for the market. But, later in the last half an hour, Nifty again sold off as news of border area in Punjab being evacuated came in.

Today there was record turn over in the market to the tune of almost Rs.11 lac cr; but a major portion of the same was a result of RMS compliance action because of excessive leveraged positions by the retail & HNIS. 

When there is any panic in the market, traders/investors may watch technical levels more closely and that suggests that one should watch the 8535-8685 area in NF for a meaningful price action in the days ahead until dust settles.

If it’s only "war of words" in lieu of "war of bullets", then Nifty may give some sharp buying momentum ; otherwise expect 8000 level in the coming days.

To dismantle the so called vast terror hubs along the Pak/POK LOC, one surgical strike is not enough, in which 35-40 terrorists & 9 Pak soldiers were killed. If Indian Govt is really serious, then it has to strike repeatedly. But the overall tone of the DGMO & the Govt seems to be quite defensive after the official announcement of this US-Laden Style "surgical strike" (Indian Govt is not interested for further surgical strike).

By this "one & off" surgical strike, Govt may tried to pacify the growing anger of the Indian people against Pak sponsored terrorism with an eye to the forthcoming state elections (UP, Punjab). Np doubt, NAMO's popularity and approval ratings will rise, which may help the poll prospect in the coming series of state elections as well as the 2019 general election. After the initial shock, market may began to discount a strong NDA/BJP led Govt having both LS & RS majority (positive for the market).

But all will depend upon Pak's response and any retaliation by Pak army or escalation of terror activities in different parts of India in the coming months may make the FPIS nervous and we may see huge capital outflow from Indian market as well.

As a failed state and economy, by escalating this geo-political tensions, Pak has nothing to loose, but India may loose significantly. 

As par some reports, China has substantial interest in the CPEC (China Pak Economic Corridor) to promote its business/interests and investing huge amount for creation of infrastructures in the POK region. China virtually now controls/invests in a major portion of Pak's economy in lieu of the CPEC access. So, in case of any serious military conflict in the region, China may also be directly or indirectly involved with it. 

Thus, China & US will ensure that there will be no serious conflicts between India & Pak unlike Kargil. 

But considering the growing domestic pressure in Pak, it may be bound to take some retaliatory action in the coming days; although Pak army is maintaining that it was not a "surgical strike" at all, but just one of a frequent cross border firing with Indian army, in which its (Pak) two army were killed. (Latest update: Pak army is claiming that 9 Indian soldiers were killed and 1 soldier captured live; but Indian army is maintaining that no one was killed and one soldier has inadvertently crossed the other side of the LOC/Border). Thus as of now, it seems to be more "war of words" rather than any serious conflicts between the two nuclear nations.

Update: Global markets

EU banking fears are again making the global market as "risk aversion" despite some rally in Oil. Some derivative traders/hedge funds are withdrawing cash from the DB and the bank may be in the process of selling more of its non-core assets (like Tradeweb stake). Also its not only DB, some of the other big EU banks may be under immense stress (like Commerz Bank-CB)  for the NIRP of the ECB.

Also, there are some reports that Saudia Arabia is also not in good shape following Oil's crash in the last one year and it's SWF may also sell the US TSY, apparently for the proposed 9/11 sues by the US Govt.

SGX-NIFTY