Nifty Adds 14 Points After A "Mini Diwali Rally" Amid Tepid Global Cues Ahead Of US GDP

Market Wrap: 28/10/2016 (17:30)

Nifty Fut (Nov) today closed around 8669, almost flat (+0.16%) after a brief swing (Diwali) rally from the opening session low of 8605 to day high of 8682. On a weekly basis, Nifty closed almost 55 points down marked by the "Cyexit" event.

Looking at the chart, for next week, NF need to sustain above 8695-8725* area for further rally towards 8760-8800/8830*-8875 zone in the immediate to short term.

On the other side, sustaining below 8665-8625* area, NF may further fall towards 8600-8540*-8500/8465 zone in the immediate to short term.

Indian market today opened lower (-43 points) on the back of weak global cues marked by mixed/poor earnings (especially Amazon) and blood bath in bonds. USD was strong amid upbeat US economic data ahead of US GDP today. 

Market is expecting US GDP as 2.5% (prior 1.4%) and anything above this may make USD more strong and in that scenario, dollar index can break the level of 99 towards 101 level, which may make "risk trade" more vulnerable. On the other side, if US GDP will print around 2%, then USD can fall good and we may have a brief "relief rally" too.

Although, some analysts are attributing higher US GDP this time on the back of consumer spending and capex, some experts do also believe that tepid consumer sentiment and retail sales has a significant downside risk for the same.

Another important global event was that, a Northern Ireland High Court today declined to interfere in the Brexit issue citing that such "high policy matters are out of their judicial review", which practically paves the way for a smooth real Brexit. The next legal hurdle will be at the British High Court, but it’s now widely expected that the British High Court may also take the same view. As a result, GBP dropped well and that's made the USD stronger. & global market may not be fully discounted yet for the "Real Brexit too !!

Early morning Asian sentiment was further subdued today as BOJ-Kuroda preferred some hawkish script in his testimony before Japan parliament and emphasized for more structural reform from the Govt rather than too much dependence on monetary stimulus. As par some reports, Kuroda may not get extension after his terms ends this year.

Overall, apart from the high probability of Dec rate hike by Fed, USD is getting stronger across G-10 currencies because of divergent monetary policy and various geo-political risks in EU (Brexit, French/German/Denmark election, Scottish referendum, EU/Italian banking crisis and Grexit). This may be one of the primary reason for increasing spreads between German & US bond yields despite recent set of upbeat economic data (EU).

Oil was also down as market is not so confident about OPEC's ability for the proposed production cut/freeze in reality. Also, as oil is now hovering around $50, many "offline" oil producers are coming "online", specially Shell oil cos, on which OPEC has no control either, which may make the rebalancing in demand & supply more tough in the days ahead.

All eyes will be on the technical meeting this weekend among OPEC & Non-OPEC countries (Russia) to work out the final modalities scheduled to take concrete shape next month.

As par latest Russian jawboning, they may "freeze" the production at the present level only (almost at life time high), but not "cut" the same.

Among all these "usual global headwinds", Indian market today opened lower, but it covered almost instantly and gave a "Mini Diwali" rally of around 75 points from the low of the day, primarily inspired by some short covering or value buying (??) for the "deep discounted" Tata group of shares, specially Tata Motors & Tata Steel and some incremental reforms buzz by the Govt (in FDI space).

After huge public spats over the "Cyexit", which has caused nearly Rs.26000 cr of notional wealth of the investors in the last few trading days of blood bath, Tata group today decided for some damage control.

Tata today assured the market that the present deleveraging strategy in Tata Steel UK is intact and they are also calling for a "Global Investor Meet" (Tata Day) shortly to convince the investors about the "letter bomb" & $18 bln "hotspots" as thrown by disgruntled Mistry.

There was also a positive news/confirmation about Tata Steel that Quebec Gov is taking 18% stake in its Canada Iron Ore project (although it was previously known).

Another report was that, Govt is planning to relax the FDI rules in several areas, including retail, information & broadcasting sector for more capital inflows and "ease of doing business" in India, which may also helped to improve some market sentiment today.

But, increasing tension at Ind-Pak border may have also dented the market sentiment as its now turning quite serious & provocative and may be described as a "virtual mini war" just before Diwali Festival and US election in two weeks. As the nation is preparing for a blistering "Diwali" with fire crackers, soldiers at the border are playing with “real fires”.

Also, the ongoing Q2 result season may have failed to convince the market so far as most of the results are “at par/slightly above market expectation” coupled with similar types of guidance. As the mid-cap valuation is quite expensive, market may not be so much enthusiastic for fresh long from here as there are no fresh domestic drivers.

Apart from the ongoing global cues and geo-political issues, Indian market may now focus more on the current earning session, progress of GST (finalization of rate) and budget preparations.

 SGX NF