Market Wrap: 19/10/2016 (17:30)
Nifty
Fut (Oct) today closed around 8662, almost flat (-0.21%) after a lackluster day
of trading and made a session high & low of 8696-8640 in the absence of any
meaningful driver (both globally & domestically).
After
yesterday's one day big rally, market participants may have choose for some
long unwinding or fresh shorting at higher level.
Looking at the analytical chart, for tomorrow
(20/10/2016), sustaining below 8660-8620* area, NF may fall towards
8585/8560-8535/8500*-8465/8405 zone in the immediate to short term.
For any meaningful strength, NF has to sustain over
8700-8720* area for further rally towards 8755*/8795-8840/8900-8925/8995 zone
in the immediate to short term.
Today
dollar was somehow weak after last few days rally amid combination of slightly
below core CPI in US & a strong GBP. This, coupled with divergence in
China data (expected GDP at 6.7%, but below expected IIP at 6.1%) made the
global market cautious ahead of ECB meet & Draghi stance tomorrow.
Although
recent US economic data may be weak as par market expectations and may also
highlight the relative USD strength, overall rate hike expectation (FFR) has
not altered much and all the focus is now on the US Presidential election.
Although, probability of Clinton is getting higher day by day and even, one of
the largest online betting site (Paddy power) has already making early pay outs
in favour of Clinton win (nearly 85% probability), some last minute drama may
be still due as Wiki leaks is going to deliver something "awful" for
the Clinton camp shortly, despite best effort by the "authorities" to
stop it.
In
any way, whoever wins, both may be positive for the USD and negative for the
"risk trade". A Clinton win will make sure that Fed is going to hike
in Dec'16 and may further give some definitive guidance about 1/2 hike in 2017.
A Clinton win may also be negative for Indian Pharma companies as cost of
medicare/medicines is now a hot political issue in US, mainly led by Clinton
camp. Moreover, there may be some increased geo-political tension, specially
with Russia over Syria issues as Clinton is being seen as "war
mongering" unlike Trump.
On
the other side, a Trump win (though very unlikely) may ensure very hawkish
monetary policy by Fed & some fiscal/structural measures and various trade
barriers & oil marketing policy in the interest of US's own economy, which
may make the USD more strong. A Trump win, may also ensure a short term
"dooms day" like scenario for the global financial market itself.
Thus,
this time, there may be double whammy for the market in Nov-Dec for various "Geo-Political" events (such as US election/FED/Brexit etc).
Another
reason of dollar weakness may be strong GBP, because of news that High Court
may direct to take necessary UK Parliament approval before proceeding
officially for the Brexit (??).
Although,
today's Chinese GDP has allayed some fear about immediate "hard landing”,
the tepid IIP and the recent trade & CPI data also suggests that, while
Chinese economy continues to expand moderately, the pace is clearly slowing, especially
in the manufacturing sector, which was the core engine of growth for many
years, being the global "manufacturing power house". The gradual
transition from export led manufacturing economy to a more balanced economy
based on services and consumption (domestic consumer demand) may keep the world's
2-nd largest economy vulnerable in the near future amid problem of huge debt
and real estate bubbles & massive industrial over capacity. The problem of
China is getting deeper & deeper with the tepid trend of consumer spending
in the EU & US. This may be the main reason, why China is persuading very
actively to develop an economic corridor with Pak (CPEC) to promote its trade
& export to the other part of the globe and this may be also one of the
main reason for the current spate of Indo-Pak geo-political tension as China is
virtually controlling the Pak economy/politics for its own interest.
In
any way, China's debt/GDP is now at almost 275% and any serious jitters (like
significant Yuan devaluation & burst of banking NPA) may be en "event
risk" for the global as well as the Indian market.
Back
to home, all eyes are on the progress of GST & tomorrow, some types of
official GST rates may be indicated Although as par various reports, there may
be 4/5 rates ranging from 6/12/18/26 & 40% with some additional cess, it may
take some more time for an overall consensus and another meeting may be called
in just before the Winter Parliament session (nest month) to finalize it.
However,
some tax experts do also think that, with so much multiple rates & cess,
the basic concept of GST (“one nation one tax” or simplification of indirect
tax) may be compromised. A faulty model of GST may make matters more complex
and effective compliance will be much lower.
Yesterday's RBI/MPC minutes revealed that although RBI is
worried about inflation uptick in the coming months, it’s equally concerned for
growth and credit inflow/rate cut transmission. It may be termed as slightly
hawkish.
After the last cut of 0.25%, only around 0.05-0.10% may have
been transmitted by the banks so far and overall, around 0.80-1% may be
transmitted or will transmit shortly out of the total 1.75% cut by the RBI. As
par SBI Chair-woman, deposit rate in India need to go much lower for effective
transmission of the overall RBI repo rate cut to all types of borrowers in the
economy. So, unless & until, proper rate cut transmission is being made by
the banks, it will help little for the Indian borrowing needs as of now, especially
for the MSME sector, which is largely dependent on banks for its funding needs.
As par S&P, although there is good scope for Indian economy
to grow by around 8% on 2017 on the back of better consumption, going forward,
there may be limited scope for any immediate rate cut by RBI in Dec’16 and RBI
may cut again only in Feb’17.
But, as par some other reports, except automobile sectors, all
the other high frequency indicators are pointing towards slow consumption in
India and that may be one of the main reasons behind lower capacity utilization
in the economy and resultant pain of "twin balance sheets".
Thus Q2FY17 earnings may be the key for any indication of
overall revival in the Indian economy. As the country's GDP is growing 7-8%
pace, average Nifty EPS growth should also be matched by at least 15% in the
days ahead.
SGX-NF
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