Technically
Nifty Fut (Dec) now (LTP: 8254) has to sustain over 8275-8295 area for further
rally towards 8335-8395 & 8450-8495 zone.
On
the other side, sustaining below 8245-8225 zone, NF may again fall towards
8160-8100 & 8040-7915 area in the near term.
Market Wrap: 30/11/2016
(17:30)
Nifty
Fut (Dec) today closed around 8254 (+82 points) after making a late day high of
8271 and opening session low of 8166.
Domestic
market today opened flat following tepid global cues on the back of skepticism
and continuing OPEC squabbling about production cut/freeze and some drops in
USD.
Although,
yesterday’s US economic data was upbeat and above expectations, specially
headline GDP & consumer confidence, some “Tweeter Tantrum” and lack of any
forward guidance by Fed after Dec’16 rate hike may be some of the reasons for
month end profit booking in USD longs ahead of deluge of economic data, Beige
Book, Italy referendum and scheduled speeches of various Fed speakers.
Now,
global market has already discounted Dec’16 Fed rate hike by 0.25% and going
forward Fed’s dot-plots may matter most as under “Trumponomics”, Fed may hike
2-3 times in 2017 against earlier perception of one yearly hike.
EU
market was also under pressure as RBS failed in a stress test conducted by BOE.
Also, some comments by Draghi that in case of “Hard Brexit”, UK may lose its
Financial Hub of the Europe have dented the market sentiment. Although, later
BOE Gov hit back vigorously by saying that EU has lot to lose significantly if
the British Banking system is damaged due to Brexit, GBP dropped sharply later
in the day, which made USD to recover some lost ground.
But
today is basically an “OPEC Day”. In the afternoon, there was an “unofficial
presser” from OPEC that Russia, Iran & Iraq has agreed for some production “cut”
and in that scenario, Saudi Arabia has also no problem in signing the Vienna
agreement. Thus, there was an early indication of some types of “Production Cut”
agreement to be signed later in the day and as oil was heavily short, this news
caused significant rally for the oil by around 8% till now.
Sudden
rally in oil also boosted the global market sentiment (“risk on”) and Indian
market, which was also consolidating, rallied in the last hour of trade ahead
of deluge of macro data later in the day.
After
market hours, fiscal deficit (April-Oct) came around 79.3% of the FY-17 budget
estimate against 83.9% in the April-Sep period sequentially. Though, it has no
meaningful market impact, the MOM comparative figure may be also an indication
of reduced Govt capex in H2FY17 as previously expected.
Core
sector out-put data printed at 6.6%, which is highest since April’16. Sudden
surge in core sector out-put data may be due to seasonal festive demand in
consumer durables and automobile sectors, which may not be repeated in the
months ahead. Construction & real estate data was tepid, but going forward,
analysts are expecting that various upcoming big highway projects may
accelerate the demands of the cement sector along with expected revival in the
real estate supported by falling price and transmission of lower interest rates
by the banks.
GDP
(July-Sep) came at 7.3% against consensus of 7.5% (prior: 7.1%) on the back of
better consumer spending. But, going forward, Q3 & Q4FY17 GDP figure may
slump by 1-2% as a result of demonetization led economic disruption and “war on
black money” approach by the Govt. Household/private spending (both
discretionary & non-discretionary) may account for almost 60% of the of the
Indian GDP.
Although,
this demonetization drive by the Govt may be now converted into another
VDS/Amnesty scheme and a “Digital Indian Economy” theme, the collateral damage
to the economy may have already done. Even if 25% of the co called “black/unaccounted”
money flow back into the formal economy later after paying 50% tax and keeping
another 25% with the Govt as “lock in”, Indian consumer sentiment may have
already suffered significantly and lack of confidence on the currency &
banking system, may prompt for some other liquid hard assets like Gold.
Market
may be assuming that with this new VDS scheme, the disruptive effect of the
demonetization may be eased quickly in the coming days and Indian consumer
story will again revive, contrary to the earlier perception of complete “destruction
of wealth” and at least 30% destruction of high end products demand in the long
term.
But,
it may be too early for arriving in such a conclusion. Market will focus on
tomorrow’s auto sales & MFG PMI data to have a firsthand estimate of the
demonetization damage to the Indian economy and consumption. Auto sales
expected to dip by around 50% in Nov after the announcement of the “surgical
strike” on the “black money”.
There
was earlier perception that for previous undisclosed income (black money), one
should have to pay around 60-80% of the amount and there will be no VDS unlike
the last one ended at Sep’16 (45% tax).
Now,
after the demonetization, Govt may have realized the reality of various
loopholes available in the system, whereby any one can convert the black money
(old currency notes) with 20-40% “handling charge” into new currency notes/gold/foreign
currency (USD) etc without even going to banks. Another factor may be also that
with the “war on black money approach”, Govt will lose both tax revenue and
private consumption in the long term. Thus, Govt after realizing the ground
situation may be softened its stance suddenly after making the whole India
standing in banking queues for over 20 days.
Tomorrow
and next few days may be more vital for the Govt to test the patience of its citizens,
when most of the people will approach banks/ATMS for withdrawing some cash from
their monthly salary. Ground situation for the MSME sector may be more serious
as most of them deals in cash (both employer & employee). The situation may
be of real challenge for the banks also as there were lack of adequate cash in
the system.
Another
point may be that of political risk for the Govt as fallout of this
demonetization fiasco. Also, the manner in which the amendments for the latest
VDS has been passed by the Govt in the LS yesterday (money bill, which does not
require RS passage at all), we can expect least co-operation in passage of
other vital bills like full GST in this winter session as there may be total “wash
out”.
It
seems that overall strategy behind this sudden demonetization just before vital
winter session of the Parliament and series of state elections may be more
political rather than economical & counter terror financing, fake notes
etc. Govt & BJP is well aware of the political as well as economical risks
for the demonetization effort, but despite that it had chosen the risk path.
Why?
One
of the answers may be that huge unemployment or under employment issues of the
vast Indian job seekers daily entering into the job market. As par some report,
it’s around 33000 per day or 12 lakh young job seekers entering into the job
market annually. As of now, Govt & private sector may be generating around
5-6 lakh fresh jobs per year. Thus, there may be above 50% gap in the demand
& supply dynamics of the Indian job market and this may be the main issue,
which NAMO may face in the forthcoming state & general election. Thus, the
politics of demonetization, “war on black money” and “surgical strikes at
LOC/POK”, which may help to divert the attention of the large young pool and
public from the real issues of the economy to the theme of nationalism etc.
Another
point may be that after this demonetization led political chaos, winter session
of the Parliament may also be completely washed out and final GST bill may not
be passed at all. Thus, there will be no pressure on the Govt to implement it
from Aprii’17 or even by Sep’2017 as it will take significant time for the economy
to be normal from the present demonetization shock and in that scenario, GST
may be implemented only after 2019 general election to avoid another “man made”
economic disruption just before series of state & general election. In the
way, there may be also less risk for the probable GST related immediate
inflationary impact on the economy and voters and no one can also blame the
Govt/BJP and at the same time, united oppositions may be also viewed as “disruptive
for development”.
Thus,
GST and other major reforms like land & labour bill may be continue to be a
political game for all the parties in the foreseeable future and rating
agencies are right in their approach that mere passage of reform bills is not
sufficient for a rating upgrade; it requires meaningful implementation and
intended result on the economy as well.
SGX-NF
