Nifty "Plunged" Amid Tepid Global Cues & Reports Of SIT Probe On P-Notes

Market Wrap: 13/10/2016

Nifty Fut (Oct) today closed around 8581 (-1.82%). In the last 30 minutes, NF recovered a bit (short covering), after it cracked to the session low of 8551. NF made an opening high of 8678 for the day.

Technically, for tomorrow (14/10/2016), NF has to sustain above 8540-505* zone; otherwise it may fall further towards 8485/65*- 8415/8395-8315/8275 area in the immediate to short term.

For any meaningful strength, NF need to stay above 8600-635* area for further up move towards 8675/8715-8750/8800*-8850/8875 zone in the immediate to short term.

Indian market today opened gap down by nearly 75 points (NF), after two days trading holidays following tepid global cues and weak Asian Market. 

Apart from FOMC induced strong chatter of Dec rate hike, China trade data primarily spooked the global market today. 

In addition to the negative global market, there was also another report that SIT is probing the black money angle of the P-Notes and asked SEBI for detailed information about the actual beneficiary and money trail of it and SEBI has already submitted the same to the Govt investigative agency working under the SC. This may be the prime reason for today's "risk aversion" for the Indian market, which clearly underperformed the global peers despite two holidays time correction (with global markets).

Indian market sentiment was also affected today for tepid macro data (IIP) released after market hours on Monday. All eyes will be on the India CPI data today (consensus 4.80%) for an overall assessment of next RBI rate cut hopes in Dec'16.

 

There were also various market buzz ranging from renewed geo-political issues like missile strike by US to Yemen rebels (ISIS) in response to yesterday's failed missile attack on a US naval ship, Russia-US tension over Syria ceasefire issue and even an imaginary talk of "World-War-III" preparation by Russia (??). 

But, the global market has not reacted to such geo-political tensions and the main reason for today's mini "blood booth" in the Indian market may be domestic rather than global events. Govt may have to clarify this SIT probe news for P-Notes.

Bank stocks were in pressure today after some reports that Banks (PSBS) are increasingly indecisive about loan recasting(CDR) or F&F settlement of their NPA/NPL, which may be critical for revival of both (lenders & borrowers).

Today Nifty was supported to some extent by IT counters (strong USD), Maruti (news of JV between Toyota & Suzuki and weak Yen), Cipla (Positive US FDA news).

Today's Chinese trade balance came bad at around $41.99 bln against market expectation of $53 bln. Moreover, export contracted by around 10% against estimate of 3.3% gain and there was also some visible contraction in Import (-1.9%). 

Overall trade data may be an indication that, along with Chinese growth, global trade or growth may also be waning, specially in the EU zone. The weakness in Chinese export may also put pressure on PBOC to devalue Yuan further, which is already at 6 years low and may also accelerate outflow. As par some reports, Chinese outflows already accelerated last month despite attempt of masking it by the Chinese authority and together with some other concerns like Chinese NPA/NPL & real estate bubbles, global market has a moderate "risk off" day today.

Though, its too early to say that the China's tepid trade data today is the beginning of a new trend or just a seasonal one amid slump in steel exports, it may be also an excuse for Fed to stay on sideline in Dec'16, if such Chinese jitters continue in the months ahead. In that sense, bad Chinese data may be good for "risk on" trade (after some initial market panic).

Yesterday's FOMC minutes also has nothing new for the global market; but the overall hawkish tone was hawkish (although some caution for tepid inflation). Also a known Fed dove like Evan's tacit admission that Dec'16 rate hike may be appropriate has made the FFR hovering around 67%. Thus the global market may be preparing itself for the impending Dec'16 and 1/2 hike in 2017. 

Fed never act without telegraphing the market well in advance and for that FFR 65-75% range may be appropriate as it implied that Fed is successful to communicate the market after months of disbelief and uncertainty about its monetary action. The surging USD TSY yields may be an appropriate indication for the same.

Thus Fed will be in action in Dec, if there is no geo-political & economical shock, like "Trumpism", China jitters, EU banking crisis and turbulence in global financial market for "Brexit" (hard or soft).

For Brexit, there will be now UK Parliament debate and a petition will be heard in the HC there. But, be it "hard" or "soft", a "Brexit" is a Brexit and EU may not allow UK to take the dual advantage for both sides for long (devalued GBP & EU/EZ free market access). Thus, UK has to decide it sooner rather than later and if prolonged, UK's own economy may suffer more for the ongoing Brexit uncertainty despite advantage of a weaker currency.

Global sentiment was also hurt again by some reports that ECB is going for some bond buying tapering despite recent denial by Draghi/ECB authorities. Also there was no meaningful progress in negotiation the DB & US-DOJ fine issues.

SGX-NIFTY