Market Wrap: 29/12/2016 (17:30)
Nifty Finished The Dec Exp Almost 1.7% Higher After Bouts Of
Demonetization, Fed & RBI Induced Volatility.
What’s Next For Jan-1st half?
Technically
Nifty Fut (Jan @8120) has to sustain over 8155-8200 area for further rally towards
8260-8335 & 8455-8505 zone.
On the other
side, sustaining below 8115-8070 zone, NF may further fall towards 8000-7940
& 7890-7790 area.
Nifty Fut (Jan) today closed around 8120 (+64
points) after making a late day session high of 8124 and an opening minutes low
of 8049 amid tepid global cues; but supported by some fall in USD & Oil and FNO Exp day related short covering.
Indian market sentiment today may be also
supported in the last hour by FM’s comments and report card about
demonetization, which describes it “successful” and remonetization is taking
place rapidly with more 500 notes are coming into the banking system.
Although, the report card mentioned that GDP may
be lower for 1-2 QTR, it’s transitory in nature. FM also emphasized on some
high frequency data like surge in direct taxes (+13.6% net till 19th
Dec, considering refunds), indirect taxes (+26.2% till 30th Nov),
Rabi sowing (+6.3%), LI premiums, MF SIP, petrol & diesel consumption and
international tourism and rubbished the “economic disruption stories” &
public “pain” after demonetization by the media & the opposition political
parties. FM also noted that after demonetization led increase in CASA, public
lending ability of the banks has increased also significantly. So, in short, we
should not be worried about so called “economic slowdown” for the
demonetization.
But, market will only belief such proposition
after flash of actual data released in Jan, 1st Week, specially auto
sales & PMI data for Dec’16.
As par some reports, after surprised surge in Nov
auto sales for some of the companies, Dec figure may be very tepid, especially
for the rural region as acute cash crunch is still continuing.
The surge in direct & indirect taxes figures
as mentioned in the demonetization report card may be for the period prior to
Nov’16 (Q2FY16).
Also, the Nov-Dec surge in LI premiums, MF SIP and
higher consumption of Petrol & diesel may be largely related to permission
to use of old 500 & 1000 notes (exempted category). This may be also one of
the reasons for surge in direct & indirect taxes (specially, payment of
property taxes & indirect taxes by old notes/unorganized sector).
International tourism may also be a seasonal factor and largely digital payment
in nature.
There was another report that, Govt may gain
around Rs.1 lakh cr of “windfall gain” after demonetization by IDS-II as declaration
of previously “unaccounted income/black money” has surged. Also, there is huge
amount, now coming out after numerous IT/ED led AML operations.
But going forward, actual IDS & tax amount may
be subjective to various legal hurdles and also time consuming. There may be
significant administrative delays because, IT dept is itself short of staff to
process such huge data after demonetization.
Also, Govt may be still hopeful for a “special”
RBI dividend after demonetization led “windfall gain”, equivalent to unreturned
old notes to the banks for another Rs.1 lakh cr (??). Although, as par the last
figure few days ago, almost 90% of the demonetized notes may have already
entered the banking system, hopes for a huge “gain” is almost nil.
But, even if some demonetized notes will not return
to the banks, it may extinguish some liability of the RBI, at least theoretically.
But, in practical, this will not affect the P/L of the RBI balance sheet and on
the asset side, there may be Govt bonds (GSECS) & FX assets (mainly USD
TSY). RBI earns profits by buying & selling differences of GSECS & USD
and out of that profit, give dividends to the Govt. If Govt forced RBI to give
the demonetized “wind fall gain” , then RBI may have to sell GSECS &
USD/TSY, which may be also next to impossible for a central bank, considering
various adverse macroeconomic effects. Thus, RBI Gov has denied for such probability
so far.
So, any significant “windfall gain” out of
demonetization and use it for some social stimulus, recapitalization of the
PSBS may be also in doubt.
There are also some reports that as a result of
demonetized “wind fall gain” of Rs.2 lakh cr (IDS-II + RBI special dividend to
the Govt), FY-18 budget deficit may come around 3-3.5%, just at par with FY-17
and at the same time, Govt can do its normal capex (infra & rural
spending), even after making provisions for the “helicopter money, tax
rate/slabs reduction, PSBS recapitalization etc.
Thus, a great part of the “dream budget” for FY-18
may be dependent upon the “wind fall gain” after demonetization and till the
actual visibility of that “gain” in the coming days; market/investors may be in
some “pain”.
All eyes will be on the scheduled 31st
Dec’16 address by NAMO to the nation for any further “shock/surprise”. PM is
expected to announce various remonetization measures, success of demonetization
& public support for it, some restrictions on gold investments, application
of Benami properties act and further steps for the “war on black money”, eyeing
for the forthcoming state elections & 2019 general election.
But, as par some unconfirmed reports, NAMO may
also announce demonetization of the new 2000 note and simultaneous introduction
of a fresh 1000 note for “public convenience” in an another “master stroke”
against “black money holder”, as this time deposit/exchange above 50k may not
be allowed at all without any other exemptions. If this “story” turns true,
then it may be a great “New Year shock” and may bring more chaos, just ahead of
another pay day (ATMS are still running short of cash and banks are still
rationing cash withdrawals).
SGX-NF
