Market Wrap: 10/11/2016
(16:30)
Nifty
Fut (Nov) today closed around 8545, up by 0.97%
or 82 points after making an opening minutes day low of 8516 and mid day
session high of 8614.
Indian
market today opened gap up in positive zone after overnight rally in US stock
Fut as market welcomed the “Prez” Trump by a thunderous rally of more than 1000
points in Dow Fut from the panic day low of yesterday.
Contrary
to earlier perceptions of “gloom & doom” in case of “Trumpism”, the market
realizes that “it’s not the end of the World” as “President” Trump sounded
quite different from the earlier rhetoric of “Candidate” Trump and the real
fact that whoever be the in the White House, has to be abide by the “rules of
the constitution” or the system in place.
Moreover,
the clear win of Trump & the Republicans and subsequent Clinton’s stance of
welcoming the new President of USA will ensure smooth transition of power in
the oval office contrary to pre-election days of uncertainty and the fact that
with comfortable majority, the new Govt may be able to transmit its reform
policies more smoothly & effectively. Together with this, Trump’s election
proposal of cutting corporate taxes, investing in American infrastructure &
health sector (Govt capex), removing of unnecessary regulations (ease of doing
business in US) are some of the ideas that the market is now looking to be
implemented under Trump’s Presidency, which is positive for US economy &
Equity market and negative for US TSY.
“Dr.
Copper” may be the best indicator for this notion of higher US Govt infra spending
under Trump or even Clinton, which has jumped significantly for the last few
days and got further boost from the victory speech of Trump, which include a
pledge to spend on USA’s ageing infrastructure in a new way.
But,
the increased fiscal spending may also add on US Govt deficits and can also
pushed up the much desired core inflation, which in turn may also force Fed to
hike rates more rapidly in 2017-18 apart from the much anticipated hike in Dec’16
(as the “dooms day” has not arrived because of “Trump’s day”).
Thus
USD is getting strong across the board, which got further boost from some
report that Trump will not remove Yellen, contrary to earlier pre-election day’s
notion. Yellen’s term will end at 2018 and then Trump may appoint a new Fed
Chair. Trump will appoint one of his close aides, who is an experienced ex-Goldman
Sachs banker for the important post of Finance Secretary (minister).
All
these have caused significant “risk appetite” and the “Trump Jump” is
continuing as of now despite several uncertainties, when he actually took over
the Oval office in mid January.
But
the overall approach of Trump to rebuild America may also cause significant
capital outflow from the EM(s) or even from the other DM(s) as Fed will
gradually normalize ultra low US interest rates and more over ECB & BOJ may
not offer any incrementally higher monetary stimulus (QQE) going forward.
In
the above scenario, China may suffer most along with another election promise
of Trump for the US jobs issues and any serious Chinese jitters like Yuan
devaluation, fund outflows & burst of its debt bomb may cause significant “risk
aversion” in the global as well as the Indian market.
Although,
Trump is not so “harsh” towards India during his election rhetoric, he may
raise the legacy issues of H1B Visas, outsourcing from Indians (IT & call centers)
& US job “theft” issues also and
excessive high prices of generic medicines charged by several Pharma companies,
including some of the big Indian names.
Strength
of USD and capital outflow concern may be one of the prime reasons behind continuous
selling of FPI(s) in the recent days and Indian market is not able to sustain
the “dead cat bounce” so far and may be also underperforming its global peers.
Today,
Indian market was significantly supported by some of the banks, especially PSBS
as market is assuming that because of Govt’s renewed clampdown on the “black/unaccounted
money”, Indian so called “hidden household savings” will now flow into the
formal banking channels and in turn will help for incremental growth in CASA of
the banks, which will eventually lower the funding costs of the Indian banking
system and banks can also transmit more RBI repo rate cuts to its borrowers.
These “hidden treasurers” may also flow into other productive sectors of the
economy and also to the financial market and eventually, will help the GDP
growth of the country.
Today
Bank Nifty also surged after a comment/tweet by one of India’s “celebrity &
influential” investor group (EQ Intelligence India-Porinju Veliyath) that they
had “bought” Bank Nifty at yesterday’s low after market meltdown induced by
initial reaction of India’s currency demonetization and “Trumpism”.
Although,
the intention of the Govt for the sudden “surgical strike” on the “black money/terror
funding” is very good, the effectiveness of the same may be questionable and
there may be severe leakages also to convert the so called “black/unaccounted
money” into smaller or even higher at later stages. Moreover, any large “black
money holder” may have already converted the major portion of the same into
hard assets or may even be able to transfer it out of India.
No person, having
significant amount of black money trashed in 500 & 1000 notes will go to
the banks for converting it into new 500 or 2000 notes and face the risk of
prosecution as there are several ways available for them to convert it at a
slight premium rather than paying 200% tax & fine and also harassment. There are several loopholes available in our system and its may not be so easy to convert the "black economy" into a "white economy" instantly by this demonetization effort.
Reality
of the situation is that, its most of the ordinary people, small business man
having some cash in hand in higher denominations are going to the banks for converting
it directly or indirectly (by depositing in to their bank accounts and again
withdrawing it later in smaller denominations after facing severe harassments).
So, on the ground level, there may be significant doubt about how this whole
exercise of demonetization will help to improve the CASA of the banks in a
meaningful way.
On
the other side, this “surgical strike” on the black money may be counter-productive
for the Indian consumption story, at least in the short term as also admitted
by our own FM today.
Another
fact that India is traditionally is a “black market real economy”, running parallel
to the formal economy and now may be transforming gradually into a “white
economy” after NAMO/Govt clamp down for the last few years. But this
transformation will take time and until then, real consumption will not improve
and we may have tepid corporate earnings till at least 2018-20.
Also,
as par some SIT reports, some of the Indian black money, slashed aboard may be
flowing into the domestic financial market through FII/-P-Note mechanism, where
the original beneficiary is very difficult to be pointed out. There is also
some suspicion that this black money (slashed abroad) may be the prime source
of election funding in India and historically, USDINR has gained significant strength
just before a general election. India may be one of the few developing/developed
nations in the world, where political donation/funding can still be done by
cash.
Thus
to make it a true cashless & “accounted” nation, the whole system need to
be changed and the Govt should ensure or encourage use of plastic money at
every places of the business at no extra cost.
Today,
Indian market sentiment may also suffered a bit after FM hinted that if for any reason April’17 roll
out of GST is not possible, then Govt is committed to make it by Sep’17. Thus,
Govt may be making some ground or preparing the market for a possible failure
of GST implementation by April’17 as highly expected by our market. If it’s not
possible by April’17 this time, roll out of GST may be deferred till 2019
general election as there are series of state elections in the coming months
(2017) and by 2018, Govt will be “busy” for preparation of 2019 general
election and may not take any immediate “inflationary” and revenue risk because
of implementation of GST (political compulsion).
As
par some report, SP (Mulayam Singh Yadav) will not form any combination with
INC (or any other party) for the forthcoming UP election and a divided SP or
the other parties may not be good for BJP as votes will be divided among
various political parties, (SP –BSP-BJP-INC).
Also, after the recent “war on black money” and subsequent harassments of the
common people, poll prospects of BJP/NDA may go down, despite India-Pak “surgical
strike” rhetoric.
Today,
Indian market sentiment may also suffered to some extent in the last hour of
trading due to a “nine page letter” bomb by Tata Sons towards Mistry, who also
refuted almost instantly. Thus, the “war of words” may continue to drag the sentiments
of the Tata group of shares and also the overall market sentiment as Tata's as well as India’s corporate
governance may be put in question by the angel investors. Eventually, this
battle of the board room may go to the court room and in that scenario, this
duet may also prolong and can distract the performances of the Tata group companies
as well.
Technically, for
tomorrow (11/11/2016), NF has to sustain over 8545-8585* area for further
bounce back towards 8620/8655*-8705 for the day in the bullish case scenario.
On the flip side,
sustaining below 8515-8480* zone, NF may further fall towards 8415-8365* &
8315-8260* area for the day in the bear case scenario.
SGX-NF
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