Market Wrap: 16/11/2016
(16:30)
Nifty
Fut (Nov) today closed around 8099 (-0.50%), just at the last minute low after
opening day high of 8225.
Domestic
market today opened in positive tone (+80 points) on the back of stable Asian &
global cues as the US Bond yield surge halted and supported by India’s “good”
CPI (4.20%), which also fuelled some rate cut hope (0.25%) by the RBI in its
forthcoming Dec monetary policy.
But,
despite opening considerable gap up, Nifty could not sustain the eventual
selling pressure on the back of fatal combination of Fed rate hike & demonetization
fears. There was clear sign of long unwinding/short selling pressure at every
rise, especially for the consumption related stocks, which further aggravated
by the ongoing political battle and continuous chaos on the “real street” as a
result of this “Surgical Strike” on the “Black/Unaccounted Money”.
It seems
that Govt has done a “Surgical Operation” on its own people rather than the
intended “Black Money Holder” and instead of initial promise for return of normalcy
from the “anesthesia” phase in 2-3 days; it may take now 2-3 months for the “patients”
to return to the “normal bed” from the “ICU”.
Considering various aspects, it
may take at least 2-3 months for the Indian banking system and the economic
activity to be normal as there are severe shortages of currency notes and
overall use of digital currency is still very poor in India.
Although,
Indian economy may return to its normal cash-flow in the coming weeks/months,
but the overall consumption story may be very tepid as “war on black money” may
hurt the purchasing power of the consumers to a great extent. It may take at
least 5 years cycle for the overall Indian economy to come clean & recover
and until then we may see tepid corporate earnings and significant correction
in the market, especially for the expensive mid & small cap sectors in
consumption oriented space, dealing specially in cash or “unaccounted/black money”.
The
correction of the Indian market may further accelerate once global EQ market
and S&P-500 catches the reality of a strong USD and begun to correct itself
as a strong dollar may not be good for US exports & economy, despite “Trumponomics”
(more fiscal spending coupled with tax cuts, which may fuel US fiscal deficit
and inflation, prompting Fed for more rapid rate hikes).
A
strong USD may cause significant EM currencies devaluation, which may also
prompt more fund outflows from the EM as well as Indian bond & EQ market,
where liquidity may be the main reason for the stupendous rally of more than
30% in the past six months or so.
China
Yuan today hovering almost around 6.90, which may also target 6.95 in the days
ahead and a serious Chinese jitters may not be good for the “risk assets” too.
Globally
all eyes will be on Yellen’s testimony tomorrow to have a glimpse of the Fed’s
view for the recent economic & political development in US.
Considering
all the pros & cons, Fed is ready for its 2016 annual rate hike in Dec as
Yellen may also like to hike before Trump officially take charge in Jan’17 and
thus FFR is now indicating almost 100% probability of a Dec’16 rate hike.
But,
the main concern may be “dot plots” of Fed as going ahead; Fed may be compelled
to hike at least 2 times in 2017 to fight the probable “Trumpflation” against
earlier market perception of 1 hike.
Indian
market sentiment may be also affected today, after report that Govt may sent
the full GST legislation bill to the states again and in that scenario, coupled
with the present political dead lock because of demonetization issues,
preparation of budget and forth coming series of state elections, Govt may be
too pre-occupied and roll out of GST may be further delayed also from April’17
to Sep’17 (??).
There
was another buzz that Govt has banned any FDI in the tobacco sector and
consequently ITC, which has a significant weight on Nifty, also got down.
The
sentiment of the domestic market may be further dragged today after report of
Pak army exercise near Indian border.
Overall, technically,
consecutive closing below 8200-8140 zone, NF may fall further towards 8040-7925
& 7675 area in the near term.
The present “distribution”
pattern may change only, if NF is able to close consistently above 8270 and in
that scenario; expect a “dead cat bounce” towards 8380-8485 & 8540 in the
weeks ahead.
SGX-NF
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