Market Wrap: 03/10/2016
Nifty
Fut (Oct) today closed around 8785 (+1.67%), just below last minute high
(8788), after an opening session low of 8656.
Technically, for
tomorrow (04/10/2016), NF has to sustain over 8805-8825* zone for further rally
up to 8875-8900/25*-8975/95 area in the immediate to short term.
On
the flip side, sustaining below 8765-45* zone, NF may fall towards
8705-8675/50*-8550/30 area in the immediate to short term.
Indian
market today opened in positive tone after overnight (Friday) rally in US
market amid talks of Deutsche Bank settlement negotiation by US-DOJ to much
more lower amount ($5.4 bln) from the original fine of around $14 bln.
But,
this is not confirmed yet and as par some reports, DB may face similar fines of
a suspected Russian money laundering case ($10 bln). So, going forward, global
market may be extreme volatile because of this DB & other EU banking
issues.
Also,
"Real Brexit" & US election outcome uncertainty may be some of
the headwinds in the coming days.
As par UK PM, Great Britain will invoke the
Article-50 as early as March'17 for beginning of the official exit procedure
from the EU. It appears that UK is focusing more on the immigration & own
economic independence issues rather than EU trade freedom at present. Thus UK
may face considerable slowdown in the months ahead despite advantage of a
depreciated currency (GBP).
On
the other side, "Real Brexit" related contagion (if any) may be
another excuse for the Fed to stay at the side lines, even in Dec'16 despite
Clinton wins the next US presidency.
Also ECB & BOE may step in with more
"Bazooka"; but it will be interesting to see, if Central Banks QQE
will be able to contain any "real contagion" effect of the "Real
Brexit".
Globally,
all eyes will be on the US ISM MFG PMI data today ahead of Friday's NFP report
to gauze the real strength of the US economy before Fed's action in Dec'16. As
US election is getting nearer, overall US economic data may be portrayed as
"good/above expectation" and USD may see some bids.
Back
to home, Indian market today got some boost from high expectation of a rate cut
by RBI tomorrow and reports that India & Pak has agreed to maintain
"peace & tranquility" in the LOC areas (despite repeated
incidents of cease fire violations & attempt to attack another army camp in
Baramullah-J&K). Also, better Sep auto sales growth has supported the market today
significantly.
The core sector output data on Friday may also help the Indian market today as growth in production of steel & cement may be an indication of better construction/ real estate and infrastructure activities.
Also, as par some reports, India's CAD is now in a much more comfortable position of 0.06% of the GDP whereas it was around 6% in 2012.
Although
market is looking for a "Diwali Gift" from the new RBI Gov this time
after the "Surgical Strike" incident, the very "owlish" (inflation warrior)
nature of Patel and some other hawkish MPC members may take note of the CPI's
"sudden fall from the clip" (from 6.03% to 5.05% in a month)
and spike of WPI (3.74%).
Thus,
the divergence in CPI & WPI may keep the RBI to be in "wait &
watch" with a dovish commentary this time and depending on the inflation
trajectory for Sep-Nov'16, RBI may cut by 0.25% in Dec'16.
There
may be some upward tick in CPI in the days ahead because of 7-CPC induced
liquidity and some deficiency in final rain counts in selected parts of the
country.
Rather
than rate cut, RBI may focus more on the actual transmission of the previous
rate cuts by the banks & effective resolution (not mere recognition) of the
huge NPA/stressed assets with the Indian Banking system, specially for the
PSBS. So far, only around 50-60% of previous repo rate cuts (1.50%) by Rajan
were transmitted by the banks to the borrowers/economy.
Another point may be that, If
banks are not able to pass on the benefit of RBI repo rate cuts (for any
reason, what so ever), then what is the point of further rate cuts by the RBI?
As
par previous commentary of RBI, it intends to keep RRI (real rate of interest)
at 1.5-2% level. At CPI around 5% and repo rate of 6.50%, the RRI is now almost
1.50% and thus for any rate cuts CPI needs to go below 4.75% in the coming
months.
But,
there is also immense pressure on RBI (direct / indirect) to cut rates this
time after "Rexit" and it will be interesting to see RBI/MPC's maiden policy and tone and market's reaction
tomorrow.
In
any way, market is expecting an overall rate cut of 0.50% by FY-17 and full
transmission of previous rate cuts by the banks, which will make Indian economy
a rare combination of "higher growth & lower interest rate" and
make it an ideal destination of the investors.
But,
for effective transmission of rate cuts, Indian small & fixed savings rate need to go
lower also, which may be a more structural & political issues in nature rather than
Bank/RBI’s domain.
Today
Nifty was supported immensely by rate sensitive stocks (rate cut expectation),
autos (better sales numbers amid festival season) and lagged by the IT scrips
to some extent (weak USD & concern of Brexit).
Stock specifically, Nifty was supported by ZEEL (buzz of M&A activity with Reliance and denial of any UAE acquisition), Eicher Motors (better sales growth and buzz of split), Maruti (record festival season sales), Coal India (better Sep production figure), Bhel (new order), Axis Bank (sales of Essar steel NPA to Edelweiss ARC).
SGX-NIFTY
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