Nifty Closed Almost Flat In A Holiday Thinned Trade Amid Lackluster Global Cues And Caution Before Q2 Earnings & IIP/Inflation Data

Nifty Fut (Oct) today closed around 8745 (+0.26%) after making an opening session high of 8776 and day low of 8732. 

For most of the days Nifty traded in an extremely narrow range with some movements in selective stocks as most of the market participants may be busy in the "sea beaches or hill stations" for an extended holiday rather than on the "trading screens" !!

Technically, for next Indian Trading day (13/10/2016), sustaining below 8715-8690* area, NF may fall towards 8665/45*-8585/30-8495/75 zone in the near to short term.

For any meaningful strength, NF need to sustain over 8775-95* area for further rally up to 8840/75*-8905/35-8995/9030 zone in the immediate to short term.

Broadly speaking, due to lack of any meaningful domestic as well as big global cues, NF may be consolidating between 8840-8540 range and any breakout or breakdown with volumes (for any reasons) may result in a 300-450 point movement on either side. 

Apart from global cues, domestic market may give more focus on the Q2FY17 earnings (Indusind Bk, Infy & TCS this week), macros (IIP/CPI/WPI for more clues about RBI stance in the coming Dec), progress of GST on the ground (as par FM, GST council may finalize the rate/RNR in the forthcoming meet to be held on Oct-18/19), preparations of FY-18 budget (to be placed on 02/02/17).

Analysts are very hopeful for a true revival of earnings in Q2 for autos, cements, metals because of incrementally higher demands & sales, but certain other sectors like FMCG, IT, Pharma may drag. Also NBFC may report good numbers, Banks (PSBS) may report some improvements in fresh NPA/NPL creation on a sequential basis (although, rather than mere recognition, effective resolution may be more important as of now and transfer of NPA to some other ARC may ease the burden on the banks temporarily, but it will not solve the basic problem of low capacity utilization & tepid demand).

Incidentally, India is aiming around 300 MT steel production capacities by 2025 from the projected FY: 17-18 capacity of around 100 MT and want to be 2-nd largest steel producing country in the World after China and will replace Japan. But, in reality it may also create a bubble (like China/SAFTA/CIS countries today) as par the current and future trend of steel consumption in the country.

Indian market today opened in a positive note following overnight trend in US market on Friday. Although, headline US NFP data was below expected, overall participation rate improved a bit and together with other recent US incoming economic data, Fed should have no issue to proceed with a Dec hike, if there will be no rude geo-political shock this time.

Although, Clinton is leading in the debate and various opinion pools, today's debate also gave Trump some lost ground amid his various controversial remarks. So, going forward, this may be close contest on 8-th Nov (polling date), although market may be already start discounting a Clinton win this time; but there may not be clear majority in both the US houses this time. Market is not prepared for a ”Trumpism" either!!

Now, more than US economic data, Fed's decision may hinge on the actual US election outcome and other geo-political (black swan) events, like "Real Hard Brexit", Italian referendum and EU banking crisis, China credit & real-estate bubbles etc.

As par some reports, DB may clinch a Qatar SWF funding for a 25% stake sale; but there seems to be no progress on the reported US-DOJ fine issues and for this, EU market sentiment was also affected in the noon trade today. 

All eyes will be on the OPEC and stance of Russia/Iran/Iraq/Saudi Arabia for the much expected actual production cut/freeze. If, production cut is a reality, then one can expect Crude to hit $55-60 in the near term, which may be negative for an oil importing country like India.

As par reports, the present Istanbul meet may be an attempt to secure a firm commitment from Non-OPEC/Non-US large producers (like Russia) for a formal production cut agreement in Vienna next month (Nov). Also, Putin's comments that Russia is agree for a production freeze and OPEC secretary general's statement that due to severe investment contraction, there may be serious issues for oil supply in the near future has ignited Crude.

But, mere chatter (verbal stimulus) for production freeze (not cut) by Russia & Saudi Arabia may not be enough, OPEC need to bring confidence of Iran & Iraq also for any real production freeze/cut.

Another point may be Russia/Saudi/Iran and also some other countries are producing almost at its best level as par its available oil infra/feasibility. So, a production freeze at the best supply level may not be so much effective to bring the much awaited balance between supply & demand for oil.  

Technically, Crude (LTP: 51.25) need to sustain above 52 for further rally towards 58-63-72 in the near term; otherwise it may come down again to 49-45 zone. 

Sentiment of Indian market today also affected to some extent by the ongoing fight between a small group of terrorists and Indian Army in J&K and as par various reports, 250 terrorists already sneaked into India even before the "Surgical Strike". 

Thus, going ahead, ongoing geo-political tensions between Ind-Pak (frequent cease fire violations, attempt to attack the Indian Army/BSF camps in various parts of the J&K and activation of sleeper cells to for targeted attacks in various Indian metros) without a full scale war/"strategical strike" may keep the Indian market on an edge. 

On the other hand a "strategical strike" instead of frequent "surgical strike" may solve the problem of "terror hubs" in POK to a great extent, but it may also make the FPIS nervous, at least in the short term.

Although, due to less than expected/budgeted proceeds from the recent telecom spectrum may affect the Govt’s FY-17 fiscal deficit, it may be supported to some extent by the windfall gain from the recent IDS & buoyancy in the indirect tax collection; yet due to 7-CPC and increased defense expenditure, H2FY17 capex for infra may be less.

As par reports, recent telecom spectrum will fetch around Rs.15000 cr in FY-17 (against budgeted Rs.100000 cr); but IDS fetched Govt a windfall gain of around Rs.15000 cr also.

Indirect tax collection also has growth of around 25.9% YOY and so far collected around 52.5%  of the FY-17 BE. Today's surge in indirect tax collections was because of significant incremental growth in central excise duty (+46.3%) & service tax (+22.1%) collection while customs duty collection growth (+4.8%) was tepid compared to this.

For FY-17, India has budget estimate of an amount of around Rs.8.47 lac cr as direct taxes and Rs.7.79 lac cr from indirect taxes (Total: Rs.16.26 lac cr).

Today Nifty was supported significantly by Tata Steel ( report of renegotiation of UK pension issues, but later denied by the UK union; EU ADD on Chinese steel, weak GBP and better production volume in India) and other metals; cements; IT; Asian Paints (better festival demand ?); Cipla & Lupin.

Nifty was dragged by Bharti Airtel, RIL, HDFC, NTPC & Adani Ports.

Update: Aug IIP came at (-) 0.7% against poll of (+) 0.77% (prior: - 2.5% in July); although slightly negative for market sentiment this being a old series IIP may have little impact on the overall market and Govt is planning to release the new series shortly. 

Capital goods, mining activities registered a steep decline, while electricity generation was almost flat. There was some growth in consumer durable, while for non-durable it was almost flat.

SGX-NF