Nifty Finished Almost Flat After A Subdued Day Of Trading Amid Tepid Global Cues Caused By Strength In USD & In Line Trend Of Q2 Earnings; But Closed The Weak Above 1% Higher

Market Wrap: 21/10/2016 (17:30)

Nifty Fut (Oct) today closed around 8703, almost flat (-0.02%) after a range bound day of trading with negative bias most of the day and made a session low of 8655 & late day high of 8710.

Technically, for next week NF need to sustain above 8735-8755* area for any "Diwali Rally" towards 8800-8870*-8925 & 8995-9030*-9075 zone in the immediate to short term.

On the other side, sustaining below 8680-8660* area, NF may fall towards 8620-8580-8545* & 8500-8455*-8400 territory in the immediate to short term.

Overall, another weekly closing below 8755 area may be still negative for the NF and a definitive break below 8545-8455 level may open the door for deeper "Diwali Sale" towards 8100-8000 area in the coming months on the back of various global headwinds & lack of any fresh domestic cues.

Indian market today opened flat after overnight US market closed in negative as USD gained strength after good US economic data, confused/dovish ECB & tepid UK economic data. 

Oil was also down from the recent multi month high amid strong USD & confusion over actual OPEC cut.But recovered later in the day after another Russian jawbone.

Yesterday's much awaited ECB meeting and Draghi comments were somehow confusing. ECB left rate unchanged as highly expected; but some of the comments made by Draghi, such as "ECB did not discuss QE extension", followed by "ECB will not end QE in a disruptive manner" and an initial comment that "QE can't go on forever" may be self contradictory itself. 

Although, Draghi was able to keep his dovish stance, market is now expecting that ECB may announce some extension of the current QE, which is scheduled to end by March'17 by a cumulative addition between EUR 500 bln to 1 tln up to March'18 in its Dec'16 meeting after seeing Fed action & its own official economic projection. 

Thus, it may be a tweaking/twisting instead of an earlier report of tapering and that's made the EUR lower, which also drags down everything (“risk trade”) lower.

Incidentally, ECB is now buying corporate bonds (which is also scarce now) in order to provide almost “free” liquidity to the EU corporates, so that Banks can lend to the MSME sector (small business) there in turn. But, somehow, this strategy is also not working and corporates are also not investing in expansion or diversification, simply because there is lack of adequate consumer demand. 

Instead, corporates are buying their own shares (buy back), which is causing more asset inflation. Ultimately, after decades of QQE, consumer demand has not increased much, while supplies/capacity addition increased significantly because of cheap money; i.e. effect of QQE has not reached the "real street" meaningfully as it quite visible on the "wall street".

Almost, the same scenario is with the US corporates, thanks to Fed, “while GDP is going to the earth, valuations are going to the sky"!!

Despite most of the US earnings are coming above consensus (may be backed by buybacks), guidance of the management is not encouraging and that's why market is also not convinced enough for reaching fresh high.

In UK, recent tepid sets of economic data and falling corporate tax (first time since 2009) may be also an early indication of "Real Brexit" impact, despite export advantage of a devalued currency.

In any way, technically, Dollar index (USDX), which is now trading around 98.50 may touch 101 level, if sustained over 99 and in that scenario, we may see and significant EM "risk aversion" as well as DM "risk off" and Indian market, being also a global part, may also react negatively in the current spate of "liquidity driven" rally by "yield hungry world of investors".

On the US election drama, Trump yesterday indicated that he will only accept a "clear result" and may file a case in the scenario of any suspected "vote rigging". All these are also causing some political uncertainty in US, despite Clinton is well poised for a "clear win".

Another concern may be continuous Chinese Yuan devaluation. A devalued Yuan may export more deflation globally, because of cheap Chinese manufactured goods and also be a credit negative, as there is huge dollar debt, which need to be repaid.

Among all these ongoing global headwinds, Indian market was looking for some drivers in the form of "well above expected" Q2FY17 results. But, so far it appears that market is not convinced enough for the "inline/slightly above expected" result so far as valuations are quite expensive & may be already discounted. 

Thus, long unwinding may be happening at every rise in the market as of now for lack of any fresh drivers and doubt about GST being implemented wef April'17 in the right format (one tax one nation), despite Mark Mobius, the legend predicted Nifty to touch 13k by Mid’2017 on the back of effective implementation of GST by end of 2017/March’18 (??) & subsequent jump in Indian earnings.

Today, market sentiment was also affected after "poor" results from ACC, which may undermine the hypes of high expectation from the whole cement sector & hopes of an early economic recovery.

Indian market sentiment may also affected today after a Moody's report, which highlighted large scale decline in private capex in various PPP projects in the last few years, because of project approval delays and various other regulatory/operational issues.

Unless & until private capex, capacity utilization recovers and there is effective resolution of stressed assets in the Indian Banking system, overall economic recovery may be uneven and continue to be elusive, despite some early signals of "green shoots".

Today's SBBJ result may be also an indication that there are still some stressed assets hidden in the system might be with different restructuring acrimony.

Another headwind for India may be vast unemployment or rather, lack of proper employment. As par some report, on an average daily 550 jobs in India are being lost and almost 80% of the jobs are paying around 10k/month. Also, almost 1 cr new workforce being added in India per year, while new job creation is much lower.  All these, may undermine the "world's fastest growing economy" tag for India and in 2019 election, it may be a big issue despite other favourable factors for the NDA. Although, official unemployment rate may be around 5% in India, in reality it may be much more.

Lack of proper jobs and adequate stable income may also be a headwind for the overall Indian consumer sentiment & spending, which is affecting demand & vitreous cycle of investment. 

Another point is that, in India IT sector traditionally is a big source of stable employment & very good earnings. But, with the changing scenerio of automation/AI/digitization, there may be significant effect on the IT jobs in the coming years, which is also quite negative for Indian consumer sentiment & retail loan portfolios of the banks.

SGX-NF