Nifty Closed In Red After A Volatile Day As RBI Cut Effect Fades Amid Lingering Geo-Political Tensions & Increasing Global Concerns

 Market Wrap: 06/10/2016

Nifty Fut (Oct) today closed around 8737 after a volatile session which saw a session high of 8815 and late day low of 8711.

Technically, for tomorrow (07/10/2016), sustaining below 8700-8665* area, NF may fall further towards 8615/8580-8530/8475*-8405/8375 in the immediate to short term.

For any strength, NF need to sustain above 8765-95* area for further rally up to 8835/75*-8905/35-8995/9030 zone in the immediate to short term.

Overall, broadly speaking, for any meaningful "Diwali Rally", NF need to sustain above 8875 for target of 9050-9185 (life time high); otherwise, it may fall towards 8530 area and sustaining below that (for any reason, whatsoever), near term target may be around 8075-8000 area.

Indian market opened slightly in positive today following overnight US market (+0.62%) supported by rally in oil and mixed US economic data. Though ADP Non-Farm pay roll figure (154k) was below expected yesterday, it was well within Fed's comfort zone. Moreover, ISM Non-Mfg PMI was at 57.1 (recent high) and better than expected factory order and crude inventory draw down data altogether may be pointing towards that underlying strength of the US economy is slowly improving. 

All eyes will be today's initial jobless claim rate and tomorrow's NFP job data in order to gauze further strength of the US economy and Fed's action in Dec'16. As par Yellen's last Fed commentary, if there is visible & sustainable growth in fresh job creation apart from replacement, Fed has no issue to hike rate in Dec'16 and may further hike gradually next year onwards (1-2 hikes per year) in order to ensure that it does not fall behind the curve and to restore its own credibility (being an independent institution free from any political interference).

Thus, slowly market is taking Yellen and endless "hawkish" scripts by various Fed speakers seriously and some types of reversal of fund flow may be gaining traction as 10Y USTSY yields are increasing and USD is getting stronger & gold being doomed. 

For Gold (CMP: 1265), technically, 1250-45 area is vital and sustaining below that, we may see more pain.

Thus, OND (Oct-Nov-Dec) may be a catch-22 situation for risk assets as the "Trumpism" or "No- Trumpism" may be both bad for "risk assets". A Trump victory may be disastrous for global "risk trade" itself and Fed has to be in the sideline at least till 2017-18 (forget Dec'16) and in the scenario of Clinton being the 1-st Lady US President, Fed has to hike in Dec'16 and moreover it has to normalize policy in 2017-18. Both may be bad for "risk trade".

Another interesting point is that even if Trump wins, USD will be stronger because of structural policy issues and pressure on Fed to tighten as early as possible; even Yellen may be replaced.

In EU, problem of DB and other banking crisis are far from over as par various reports. Apart from US-DOJ issues of fine ($14 bln) and some other huge legal costs. Russia money laundering issue ($10 bln), concealment of losses in the books of accounts ($11.8 bln), and there are huge unexplained derivative exposure of above $40 tln; so DB  may pose some serious systemic issues unless & until German Govt bailed it out (unlikely before German election).

Incidentally, IMF also today warned about unsustainable huge sovereign & private debt to GDP ratio.

Among all these Fed hike talks, buzz of premature ECB tapering, EU banking crisis, bubbles in China property & credit market (especially in small Cities) and hard talks of Brexit, investors are fretting and there may be some serious signs of "risk aversion" happening in the market.

As India is not disconnected with the global financial market & various geo-political events, domestic market is also under some selling/long unwinding pressure in the absence of any fresh meaningful triggers which can help the market.

India also has its own geo-political tension with Pak at the border and there are increasingly frequent incidents of cease fire violations, attacks to various Army/BSF camps by the terrorists are going on, which kept the market on an edge in the Festival season. But, under immense political pressure and global isolation, Pak PM may take some active steps to destroy the terror hubs of its own in the days ahead (positive impact for the market).

Today Bank stocks are under immense pressure as RBI rate cut effects began to fade and market may give more focus on the reality of the NPA/NPLS, rate cut transmissions and Q4FY17 result, which will kick start from tomorrow with South Bank's result, followed by Indusind Bank & INFY next week. Some analysts are expecting an average double digit growth of around 10% (YOY) against 3% actual YOY growth in Q1FY17.

Govt today also announced some fresh policy framework for small & payment banks and may announce some more relaxation for FDI rules in the days ahead (as par market buzz).

Among all the tailwinds of domestic market & headwinds for the global market, our Govt is always ready to announce any incremental economic policy reforms at every major/minor dips of the market, limiting its fall. 

Thus Indian Govt may continue support the capital market, despite some global concerns until & unless it achieves its disinvestment & SUUTI sales target !!.

Today Nifty was supported by Oil & Gas (RIL/ONGC/Gail/BPCL for rally in crude oil and some reports about improving GRM) & HDFC; while it was dragged by Cipla, NTPC, M&M, Infy and ICICI Bk.

IT packs were weak today amid concerns of "Real Brexit" & US election risk ("Trumpism").

Notably, Yes bank initially fall after news of SEBI probe for possible irregularity of the recent QIP fiasco, but later recovered to some extent, after the company denied it.

SGX-NF