NF
has to sustain over 8080-8120 zone for any “rally” towards 8185-8260 area; otherwise
sustain below 8040-8000 area, it may again fall towards 7960-7920 zone for tomorrow.
Market Wrap: 23/11/2016
(17:30)
Nifty
Fut (Nov) closed today around 8015 (+8 points) after another volatile day,
which saw some selling/long unwinding after gap up opening around day high of
8058 and subsequent short covering/some value buying from the session low of
7972.
Indian
market today opened in positive tone supported by overnight record closing in
US market and positive Asian cues amid holiday thinned market (Japan was closed
for holiday and US market is also preparing for a long four day Thanks Giving
weekend).
But
the overall strength in USD may be hurting domestic market sentiment as
USDINR-I breached the multi month high of 68.25 and raced towards 68.60. Technically, consecutive closing above
68.25, USDINR may further rally towards life time high of around 69.25 &
70.50 in the near term
Apart
from the “known” factor of Dec’16 rate hike by Fed & “Trumpflation”, there
is also a market buzz that Fed may indicate for another hike in mid 2017
(June-Aug’17). Also favourable bond yield spreads between USD &
German/ECB/UK is helping a lot for the dollar strength.
Going
forward, increasing political risk in EU because of “Trumpism” may also force
various EU nations to spend more for infra & structural package along with
gradual reduction in monetary stimulus. All these may further accelerate EM
fund outflow and India may be also one of them.
Indian
market sentiment may be also suffering due to the ongoing concern about slowing
economic activity and its effect on GDP, consumption and earnings for the
demonetization in the short term and for the “surgical strike” on “black money”
in the long term.
Already
various big automobile companies, such as Honda are reporting drastic fall in
sales. As the Govt is repeatedly saying that this demonetization is only a 1st
small step towards eradicating Indian culture of rampant corruption & graft
money as well as widespread unaccounted money (which mostly come from undervalued
real estate transaction to escape taxes), market may be apprehending more steps
such as online listing of real estates, one time declaration of financial
assets in other forms (Gold, EQ & other financial instruments) etc.
Although,
intention of “war” against black money is no doubt a bold step by NAMO despite
various debates of demonetization, the hard fact remains that the great story
of Indian consumption is still dependent significantly on this black/unaccounted
money.
Because
of demonetization, real estate prices are already crashing by as much as 30-40%
and the overall cash flow mismatch may cause significant headwinds for the
banks in the form of incremental growth in NPA/NPL despite one time tailwinds
of greater CASA & better NIM (temporary).
Thus,
the overall collateral damage because of this demonetization may be much more
than the intended benefit, even for the long term. Also, Govt should attack
more the root causes of black money rather than the byproduct of it (undeclared
cash) as only around 6% of black money is being kept as “high denomination
Indian currency”.
In
the short term, as India is largely a cash economy, it will take significant
time to convert it into a digital economy as the country lacks the necessary IT
& internet infrastructure and most of the people can’t afford a smart phone
either. Also, most of the small business may not be prepared to pay full taxes,
because in that scenario, it may not be viable for them to continue the
business at all and unemployment may be the biggest headwind for the NAMO Govt
in the next series of elections.
Apart
from the demonetization chaos, market sentiment may be also affected due to the
ongoing political battle and “war of words” between the “united opposition” and
the BJP.
As
expected, Govt today deferred the scheduled GST council meeting from 24-25-th
Nov to Dec 4-5-th. The Govt are trying for some “compromise” with the united
opposition and called a meeting on Nov-24 to discuss the current parliament
log-jam because of this demonetization protests.
In
the present scenario of political & demonetization chaos, passage of final
GST bill and implementation of the same may be looking very difficult from Aprii’17
as Govt will be pre-occupied with this “war on parallel economy” and also with
the budget.
Indian
market sentiment may also be affecting due to the continuous cease fire
violations at LOC (Pak), where a “mini battle” is being fought for the last few
weeks after the “Surgical Strike” by India. This “virtual war” may take shape
of a much more serious “real war” at any point of time, considering the
political compulsion of both the countries.
Thus,
going forward, there may be unusual volatility in the Indian market for various
domestic as well as global reasons (both headwinds & tailwinds) and one
should take this volatility as an opportunity without any emotion.
The
current correction of the Indian market may not be a simple “time correction”,
it may be more of a “price or structural correction”. A strong USD, coupled
with FPI outflow & multiple domestic headwinds & slower earning
recovery may be some of the reasons for which we may see Nifty trading between 7900-6800
in 2017 rather than 8000-8500 & 9000 zone.
Valuation
wise, at projected FY-17 Nifty EPS of around 405 and an average PE multiple of
18 may translate Nifty fair value around 7290 (FY-17).
NF
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