Technically,
Nifty Fut (Dec) now (8177) need to sustain over 8245-8275 zone for further
rally towards 8335-8376; otherwise sustaining below 8160-8120 area, it may
further fall towards 8040-7900 zone in the days ahead.
Market Wrap: 29/11/2016
(17:30)
Nifty
Fut (Dec) today closed around 8177 (+26 points) in another day of consolidation
(+0.32%). The Indian market opened in a strong note today after some fall in
USD as “Trump Trade” fades. Also overnight fall in oil as a result of ongoing
OPEC squabbling may be also beneficial for Indian economy, being a net importer
of oil. The much awaited OPEC cut remains an illusion and a “no deal” tomorrow
can cause significant melt down in oil.
But,
eventually, the domestic market couldn’t sustain the late day selling pressure
and closed the day well off the high (8220) after making an opening session low
of 8147. The selling pressure was evident in select FMCG, IT, Banks (fresh
shorts) while Auto, and Telecom & Oil gave good support (short covering).
Fitch
today downgrades Indian GDP (FY-17) from previous estimate of 7.4% to 6.9% as a
result of demonetization led disruptions in the economy for the short term. It
has also warned for more stressed assets and tepid domestic consumption &
private investments for the broader economy.
Indian
market also stayed cautious ahead of key macro data later in the week (GDP,
Fiscal Deficit and Core Sector Output). Overall sentiment remained weak as both
short & long term effect of demonetization & “war on black money” on
the economic activity and consumption may be huge negative and as par various
reports, GDP may be affected by at least 1-2% in the short to long term and
corporate earnings may also be affected by around 5-10%.
As
par UBS, Nifty EPS growth may be around 5% in FY-17 and 14% in FY-18 (low base
effect?).
At
5% growth, FY-17 EPS may be around 385, which may translate a fair value of
Nifty around 6930 at an average PE of 18. Even if one assumes FY-17 earnings
growth will be around 10%, then fair value of Nifty may be around 7290
(405*18).
It’s
true that Indian economy may be limping back to normal after remonetization,
may be after another 3-6 months, but there may be permanent loss of domestic
demand/consumption by at least 30-40% for the “wealth” destruction as a result
of demonetization and “surgical strike” on the “black/unaccounted” money.
Telecom
stocks bucked the trend for the last few days as Govt is emphasizing on digital
cashless economy (mobile banking etc), which may spur more data consumption.
Also, various other telecom operators are on the deleverage path (Idea will sell
its 100% stake in the tower subsidiary).
Global
cues were mixed today amid fall in oil and forthcoming Italy referendum (EU
political risk). In UK, mortgage
approval data came better than expected, which indicates a robust housing
market despite fear of Brexit.
But,
going forward Brexit related headlines (SC hearing and hard/soft Brexit etc)
may also return along with other potential EU political risks, which may cause
significant headwinds for the “risk assets”.
USD
got some strength later in the day after report of strong “Black Friday” & “Cyber
Monday” sales.
Although,
Dec’16 rate hike by Fed is almost certain now, market may also watch today’s US
GDP, Housing & Friday’s NFP data and host of Fed speakers for an idea about
rate hikes in 2017.
There
is strong probability of at least two Fed hikes in 2017, if not three (June
& Dec’17), depending upon the actual fiscal spending plan & action
taken by the new Trump administration in Jan’17. As par some analysts, this “Trump
Rally” on the mere talk of fiscal spending may be overblown and running far ahead
of reality.
Even
if, “Trump Tantrum” is over blown for the EM currencies, US market may also
correct significantly from the current level as a strong USD may not be good
for the US economy and market in the long term. On the other side, if “Trumponomics” does not
work well (fiscal spending, tax cuts etc), it may also be huge negative for the
US markets. Another headwind may be “uncertainty” about Trump as an immature
political leader.
Thus,
EM market including India may be now in a double whammy of strong/weak USD
& weak US market (EQ) in the days ahead.
The demonetization led short term economic, political disruptions and “war on
black money” induced long term effect on domestic consumption may be a
structural correction for the Indian market along with ongoing deluge of global
headwinds.
Technically, a major “death
cross” in the chart has already happened, which may be invalidated only
consecutive closing above 8455-8615 zone in NF and that’s looks very tough as
of now. In that scenario, Nifty may be heading for 7900-6800 zones in the
coming months rather than 8000-9100 zones as previously assumed.
SGX-NF
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