Nifty Closed 74 Points Lower Amid Negative Global Cues Led By Concern Over China & FCNR Redemption Pressure On Indian Rupee

Nifty Fut (Oct) today closed around 8531 (-0.86%) after a "sharp selloff" and made an opening high of 8612 & session low of 8607.

Technically, for tomorrow (18/10/2016), NF need to sustain over 8545-8565* zone for any intraday recovery; otherwise it may fall towards 8500/8465*-8405/8360-8315/8235 area in the immediate to short term.

On the other side, for any meaningful strength, NF need to stay above 8595-8620* zone for further rally towards 8670/8700-8740*/8785-8815/8875 area in the immediate to short term.

Overall, if NF sustained above 8565 tomorrow, then we should have some opportunity for "Diwali Shopping"; otherwise it may be "Diwali Selling with heavy discount" till at least 8465 area. So watch 8565-8465 zone in NF closely.

Indian market today opened almost flat; but soon after opening, some selling wave grips in, which intensified further after China (Shanghai-B) tumbled almost 6% in noon trade ahead of Chinese GDP data day after tomorrow. There was also some report that Chinese "debt bomb" is ticking and together with the continuous Yuan devaluation made the market nervous.  

Apart from China concern, global market may be also getting prepared itself for an impending Dec rate hike by Fed. 

On Friday, Yellen in her speech hinted that Fed may look for bond yield steepening in the long end (like BOJ??) and may also tolerate higher inflation for US economy and together with that, the rate hike expectation in Dec (now around 73%) made the USD stronger across the board and bond yield surged. 

There are also lots of big US corporates reporting earnings this week and all these has made the "risk on" sentiment tepid to some extent.

Although, probability of "Trumpism” is getting reduced day by day, US election & geo-political risk remains. As par Faber, Clinton being a war-monger, next US presidency of her may incite serious geo-political tension with Russia over Syria issues. On the other side, if Trump wins, there may be less geo-political tension, but more risk of economic instability because of his unpredictive nature & style of functioning.

 

There was also some renewed concern/uncertainty about Brexit (soft or hard??), after reports came in that there was some division in the UK ruling party (between PM  & FM) over the “divorce” procedure. 

Also, on Saturday, both Markel & Hollande came heavily on UK for the Brexit negotiation and warned that UK will get access of the free EU/EZ, only if it allows free movement of citizens. 

This immigration issues may be the most contentious point in this Brexit saga and politically sensitive for May (UK PM) also. Thus, unless & until these negotiations get over, current atmosphere of uncertainty may continue for UK as well as for the global market. All eyes will be now on a Brexit related case filed in the UK HC, which will be heard this week.

Among all these ongoing global concerns including EU banking crisis, there was some added headwinds for Indian market in the form of probable FCNR-B redemption pressure to the tune of $22.4 bln.

Indian market sentiment may be also affected today for expected pressure on Rupee as FCNR redemption is getting closer. Previous estimate was around $15 bln because of some roll over; but now there are reports of $22.4 bln possible outflow and around $10 bln position may be in unhedged condition. 

Analysts are expecting steady INR depreciation towards 70 levels in the months ahead for this outflow and divergence between RBI & Fed's monetary stances (strong USD).

Indian market was not sold off today because there was significant support from some of the selected banking counters after yesterday's deal between Essar Oil and Russian Co (Rosneft) for &12.9 bln (largest Foreign M&A deal in India so far). 

Essar, being a debt laden group, this deal may help the co to repay major part of its huge debt, while for some of the banks (ICICI/SBI/IDBI), it may also help to lower provisions (watch lists). Market may be expecting more such deleveraging deals for Essar group and other stressed Indian corporates in the days ahead.

Market sentiment was also affected by the tepid earnings/revenue growth of the two big IT duos (TCS/Infy) and their subdued guidance, which is "uncertain".

Apart from Brexit & US election risk, lack of automation/AI & digital technology may be the biggest challenge for the traditional Indian IT cos (in software service) now.

Also Q2FY17 earnings concern may kept the market on toes as valuation may be still expensive.

On the macro front, India reported on Friday around 4.6% growth in exports in dollar terms after many months, which may be a sign of revival.

Looking ahead, with lots of global events & economic data this week, domestic market will also focus on the forthcoming GST meet on 20-th Oct, which may decide the rate of GST. 

As par some reports, there may be 4 rates for the GST ranging for essential commodities, services, sin goods and the RNR may be 18% and the much hyped concept of "one tax, one nation" may not be there, at least for the initial years (2019 ??) and it may more look like the present "VAT" in the new "GST" name ("Old wine in new bottle" ??) and in that scenario, GST's incremental contribution towards GDP may be doubtful.