Nifty Recovered Well From Deep Loses After “President” Trump Sounds Different Than “Candidate” Trump

Market Wrap: 09/11/2016 (16:30)

Nifty Fut (Nov) today closed around 8479 (-88 points), just 1% after falling as much as 488 points (-5.7%) at 8076 in the opening minutes. The global market as well as the Indian market also recovered from the deep loses after “President” Trump gave an upbeat statement, which may be far different than some of the earlier election campaign rhetoric by “Candidate” Trump and subsequently NF made a late day session high of 8493.

Technically, for tomorrow (10/11/2016), NF has to sustain above 8485-8515* area for further up move towards 8545/8560*-8605-8640 & 8705-8750*-8790 in the immediate to short term.

On the other side, sustaining below 8430-8400* area, NF may further fall towards 8365/8335*-8260-8210 & 8175-8135-8075/8040* zone in the immediate to short term.

Similarly, SPF (LTP: 2115) has to sustain over 2145-2150* area for further “Trumpism” towards 2170*-2190 & 2235* zone; otherwise it may come down towards 2099*-2075 & 2045-2025/2005* territory in the near term.

The market recovered from deep loses after Clinton called Trump in an conciliatory tone to concede her defeat and in an exchange of “good courtesy”, Trump also acknowledged her contribution for the USA in his speech. Further in his victory speech, Trump said that “now is the time for all Americans to come together and rebuild the nation and the Govt will serve the nation and he will be the President for all the Americans”. He further stressed that US will deal “fairly” with other nations willing to get along with America and he will “double” the GDP growth of his country.

Thus the maiden statement of “Prez” Trump that he will be for “common ground” (co-operation) and not “hostility” contrasting his earlier heated rhetoric for which he was being seen as a symbol for “uncertainty” (anti establishment) was able to calm the nerves of the market to some extent and shorts were covered just before US market opens.

Also, the fact that Trump camp (Republicans) are in comfortable majority in both houses of US Parliamentary system (Senate & House) unlike the present situation may have also helped to recover the sentiment of the market (risk assets). This may give Trump & Co greater freedom to implement its reform policy, be it fiscal or structural.

Also, geo-political tension, especially with Russia for the Syria issues may recede after Putin called Trump and vowed for “full co-operation”.

Earlier FFR was indicating a 50% probability of Dec’16 rate hike after “Trumpism”, but later it was also recovered to around 75% along with recovery in the USD. It was around 84% yesterday, when market was pricing for a clean Clinton victory. Today at one stage, SPF has even triggered down circuit and halted trading after plunging 5%.

But, after the US election dust settles, market may face some serious headwinds if Trump/Republicans will go for some of its election campaign promises, such as “bring back jobs to America”. In that scenario, Chinese economy and Yuan may suffer most and any serious “China Jitters” may be sufficient for a prolonged market meltdown, at least for the short term (like in Jan-March’16 global market crash after Fed hiked in Dec’15 and consequent Yuan devaluation).

Pre-Election campaign by Trump was marked by vigorous anti-foreign comments, promise to break the present trade deals, restrict immigration and confrontational stance towards China/India/Mexico for export of American job issues. 

Being an outsider from the main politics, Trump was earlier seen as “unpredictive” and also “destructive”. His comments that Fed has created a false market by artificially kept US interest rate lower for decades has created a ripples in the global risk sentiment. 

But later, his tone towards India has changed and it remains to be seen if the “President” Trump will be different from the “Candidate” Trump on the ground as in reality everything in Oval Office is controlled by the “system”, whoever be in charge.

Indian market today opened around 150 points gap down in early morning SGX-NF, even before any hints of “Trumpism” on the back of yesterday’s surprised “Surgical Attack” on the “black money/terror funding” by the Govt.

While the intention of the Govt is quite good and may also yield some effective results in the long run, the fact that Indian economy (consumption story) is largely dependent on “black/unaccounted money” may have its effect on most of the consumption oriented companies/sectors (like real-estate, consumer durable goods etc) has clearly dampened the domestic market sentiment.

Despite India is growing around 7-8%, average Nifty EPS is not growing at 15-16% as should be and for the last few years real earnings growth is not happening as expected for the as the country may be transforming gradually from a “black money” oriented economy to a “white money”. This may be one of the primary reasons behind tepid earnings, lack of full capacity utilization and poor private investments for the last few years despite some signs of “green shoots”.

Almost 65% of Indian GDP may be transacted through cash as the country is not yet fully developed into a “cashless economy” unlike developed nations. Moreover, decades of high taxation, especially in the real-estate sector has encouraged even common people to not report fully any real-estate transaction. 

Thus the actual efficacy of the sudden “surgical strike” on the black money may be debated, but it may have also some serious head winds for the Indian domestic consumption story, primarily for which it’s being portrayed as one of the “sweet spot” in the global economy (rare combination of incremental growth and lower interest rates).

As par some reports, Govt’s present war against black money may prompt for more CASA for banks, which in turn may also help to lower the funding costs of the banks and help to transmit the rate cuts to the borrowers. 

Also, because of absence of black money, inflation may come down, especially for real-estates and more funds may be allocated for EQ rather than hard assets (Gold, real-estate).

But there are also some concerns that because of lack of black money flow in the economy, NPA/recoveries of banks may suffer more and cross sells (like MF/insurance investments etc) may also suffer as unaccounted or even foreign money (China-Nepal route) has its way in the Indian financial savings instruments because of its safety and comparatively high return and bank’s other income may also nosedive.

Thus “war on the black money” may yield some effective results in the long term, but in the short term it may also dampened the overall domestic consumption story and market sentiment as the reality of the situation may strike more painfully on the “real economy” of the nation.

 SGX-NF

 SPF