Nifty Plunges By More Than 100 Points On US Election Anxiety & No Fresh Domestic Triggers Ahead Of Fed Meet Today

Market Wrap: 02/11/2016 (16:30)

Nifty Fut (Nov) today closed around 8549 (-1.18%) after making a day low of 8531 and session high of 8579.on the back of negative global cues amid uncertainty of US election outcome.

Looking at the chart, for tomorrow (03/11/2016), NF has to sustain over 8540 area; otherwise it may further fall towards 8500-8465*-8400 and 8350-8260-8205* zone in the immediate to short term.

On the other side, for any strength, NF need to stay over 8600 zone for further bounce towards 8640-8685*-8705/8750 and 8800-8840*/8875-8905 area in the immediate to short term.

Indian market today opened gap down by around 87 points amidst tepid global cues because of uncertainty about US election outcome as Trump & Clinton is now almost running neck to neck in a pre-poll survey done by ABC/WP yesterday. As a result USD is being hammered and investors are running for the cover of safe heavens in Yen & Swiss Franc and even Gold and the other “risk trade” (EQ) is being doomed.

Politically, all eyes will be on the next series of poll survey to be published later in the day and on FBI also, if they can throw any lights before US Election Day for their investigations on the latest series of Clinton e-mails. Also, ongoing Wiki revelations of “Podesta/Clinton mails” may also be keenly watched as Wiki have already promised about something very “damaging” for Clinton camp just before US Election date.

Against this “political” backdrop, today’s Fed meet may be a non-event as there is virtually no expectation of any rate hike. But, Fed’s statement may be keenly watched for the high probability Dec’16 rate hike & guidance and any reference to the ongoing geo-political events, especially any “nasty surprise” for the US Election outcome (Trumpism). If Trump wins this time, market will sink significantly and Fed has to be on hold till at least Dec’17 (forget rate hike in Dec’16). But, the problem is, Trump being viewed as “uncertain/unpredictable”, there may be significant policy changes and even Yellen may be forced to quit early in case of "Trumpism".

Theoretically, Trump’s policy of lower taxes and more spending along with some other structural & fiscal measures may prompt Fed to hike rates more rapidly and USD will gain strength. Thus, if Trump’s prospect looks better in the days ahead, market may also give some attention to his economic policy.

In the event of Clinton win, market may have some temporary relief rally, but the ongoing FBI probe on Clinton may also make matters worse. In the event of Clinton win, Fed should have no immediate caveat to stay on the side line and has to hike in Dec’16 with a guidance of 1/2 hike in 2017. Also, Clinton is considered as a “war mongering” and in that scenario, geo-political tension with Russia may also increase significantly for the Syria issue.

Thus, both (Clinton and Trump) may be negative for “risk trade” and it may also be a “double whammy” for the global as well as Indian Market.

Oil was also under immense pressure after yesterday’s surprise inventory built up and ongoing squabbling from OPEC.  

Among all these global jitters associated with US politics, Indian Rupee may come under immense pressure if dollar index  will stay above 99-101 area and in that scenario, USDINR may rally towards 70-71 level, which may be not good for the overall Indian economy/macro and specially for the FPI(s). 

This Rupee devaluation concern may be another reason for the consistent selling by FII(s) in the last few weeks and on an average, benchmark Nifty may fall around 100 points for every 1000 cr selling by the FII(s). As par some market buzz from FII desks, in the event of the above geo-political events, Nifty may correct by around 20% and midcap index may also correct by around 40% from the recent high.

Indian market sentiment is also being hurt for the continuous firing & shelling by both sides (India & Pak) at the border/LOC and it’s like an “unofficial Mini War” going on there, which may turn quite serious in the days ahead.

Also, ongoing “war of words” between Mistry & Tata is spoiling the overall market sentiment apart from adverse impact on the Tata group of shares also. It may also damage the overall image of Indian corporate governance & the “dignity” of Tata in the eyes of the institutional investors. As corporate politics & board room battles are getting centre stage instead of core business & earnings, investors may be quite worried about the future of various Tata group companies.

Today, as the market was sinking for global jitters, Govt tried to talk up the Indian market by some selective “leaks”. As par some market buzz, RBI & Govt is working proactively on faster resolution of NPA/stressed assets. RBI is planning to change some norms for provisioning for the banks and the Govt may be formulating a special OTS (one time settlement) for repayment of the NPA/NPL with a special package for the construction sector. 

Today S&P affirms India’s rating (‘BBB-/A-3“with stable outlook) dashing the hope for an immediate “upgrade” by the Indian Govt. 

S&P also virtually ruled out any rating upgrade for India by next two years citing weak public finances & low per capita income despite India’s sound external position (macros) and inclusive policy making decision. S&P also warned about any failure of RBI/MPC’s target to achieve 5% CPI by March’17 and adherence to standard net Govt debt to GDP ratio.

Clearly, S&P is also concerned over India’s pain of “twin balance sheets” (high corporate leverage & huge banking NPA) and actual implementation of the recent economic reforms, such as GST etc. 

Today, Indian Govt also came heavily on S&P for not upgrading its rating despite recent measure of various reforms. But as par S&P, mere policy/reform formulation is not sufficient for an upgrade, it also requires implementation on the ground. It seems that Indian Govt is increasingly getting frustrated for this rating upgrade issue, which is just above junk on the global standard and may hamper future incoming flow of foreign capitals in the country. Also, recent issue of “ease of doing business” in India does not look great and all these may be hampering investor sentiment also, despite 24/7 PR activities.

As state election days are coming fast, there may be also some political risk on the Indian market also. Despite the “surgical strike” and the ongoing “warmongering” stance with Pak, poll prospect of BJP/NDA looking slim both in UP & Punjab.

In UP, there may be an alliance to be formed between SP & INC and moreover, BSP has better prospect because of internal feud in Yadav family (SP) amid caste/religion based politics there. Yesterday’s incident of SIMI terrorists encounter killing may have also dented the sentiment of Muslim community on the BJP Govt and all these political events may make it more difficult for final GST passage on consensus.

As Q2FY17 earnings & guidance has no great surprise and moreover the recent results of banks reveal incremental jumps in NPA (both yearly & sequentially), market may not be quite impressed and preferring to sell at every highs (long unwinding or short selling) for lack of any fresh domestic drivers.

Technically, consecutive closing below 8540-8465 level in NF, may pave the way for deeper correction towards 8000 zone in the short term; otherwise expect some bounce up to 8750-8840 area.

 SGX-NF