Thursday 29 December 2016

Nifty Bounced Back By 75 Points Supported By FNO Exp Day Short Covering, Fall In USD & Oil And Remonetization Talks By FM Ahead Of Another Scheduled Address “To The Nation” By NAMO On 31ST Dec Evening



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

Nifty May Be Under Stress Amid Tepid Global Cues & Some Apprehensions Over Reports Of An Impending “NAMO Speech” On 31st Dec To “The Nation” (?)



Market Mantra: 29/12/2016 (08:30)

Watch 7980-7940 & 8075-8120 Zone In Nifty Fut (Dec), Which May Open Around 8010 Today

BNF need to sustain above 18000-18150 zone for any further “Santa Rally”.

Although there may be some concern about an unconfirmed news that NAMO will address the nation on the 31st Dec evening, drops in USD & Oil and extension of loan repayment days by RBI due to demonetization may help the market sentiment.

As par early SGX indication, Nifty Fut (Dec) may open around 8010 (-14 points) following tepid global/Asian cues.

Overnight US market corrected by around 0.56% in a low volume holiday thinned market after disappointing pending home sales figure, which came at -2.5% against +0.5% estimate (Prior: + 0.1%). The sudden unexpected drop in US pending home sales may be an early indication of higher cost of borrowing coupled with high prices & low inventory. Thus, going forward, there may be some doubt, whether US economy can withstand successive Fed rate hikes and a stronger USD. As a result, USD & US bond yields drops to some extent and “Trump Rally” also fades for US stock market.

Oil is also down for an unexpected inventory buildup in a private report.

Back to home, drops in USD & Oil may help the Indian market sentiment to some extent, but an unconfirmed report that NAMO will address the nation on 31st Dec evening, after demonetization deadline expires for exchange of old notes, may also keep the market in some kind of pressure ahead of various uncertainties in the new year (2017).

Hints for actionable trading ideas: 


Technically, NF has to sustain over 7980 zone today; otherwise it may further fall towards 7940-7915/7890* & 7840*-7790 area for the day (under bearish case scenario).

On the other side, sustaining above 8040 zone, NF may further rebound towards 8075-8120* & 8160-8200* area for the day (under bullish case scenario).

Similarly, BNF (LTP: 17866) has to sustain over 18150 area for further rebound towards 18250*-18350 & 18450*-18700 zone for the day (under bullish case scenario).

On the other side, sustaining below 18000 zone, NF may further fall towards 17800*-17700 & 17600*-17350 area for the day (under bear case scenario).




NF



BNF

Wednesday 28 December 2016

Nifty Closed The Day In A Negative Note After Sudden Late Day Basket Selling (?) Amid Concern Of “Uncertainty” In 2017



Market Wrap: 28/12/2016 (17:30)

Technically Nifty Fut (Dec @8034) has to sustain over 8085-8120 area for further rally towards 8160-8200 for tomorrow.

On the other side, sustaining below 8040-8000 zone, NF may further fall towards 7940-7890 by tomorrow (FNO Exp day).

Nifty Fut (Dec) today closed around 8034, almost flat (+0.03%), but well off the day high of 8100 in a late day probable “basket selling” by some institutions (almost 13 lakh NF sell around 14:09), most probably to realign their portfolio ahead of FNO Exp tomorrow and start of new CY. NF made a session low of around 8024 today in a matter of minutes after gyrating around the vital resistance zone of 8085-8120 for some time and unable to break the level of 8120.

Although, apparently there may not be any specific reason for such sudden late hours “basket selling”, we have to keep in mind that the yesterday’s bounce back in the market was itself a “short covering rally” on the basis of some tax reform talks by the Govt, which was already a known factor for the market also.

Looking ahead, market may look into actual announcements by the Govt/NAMO regarding further demonetization/remonetization steps after 31st Dec’16, any announcement of “stimulus” on 2nd Jan’17 at NAMO’s scheduled public meeting and other “selective leaks” about tax reforms in the forthcoming budget.

Indian market will also watch monthly auto sales, Mfg PMI and other high frequency economic data for Dec’16 to gauze the actual damage suffered by the economy and lower trajectory of Q3FY16 earnings & GDP as a direct impact of the unprecedented “reform” of demonetization. 

Indian Govt today appointed Viral Acharya, a NY based professor in economics as one of the Dy RBI Gov, who has expertise in NPA management and has also some flamboyancy and thoughts similar to Rajan. As par some analysts, Viral “knows the moral hazard of Govt guarantee in banks/PSBS and he may push for running PSBS in an efficient way”.

May be, market is concerned about another “deep surgery” like Rajan for the hidden stressed assets and thrust for actual resolution for the banks/PSBS rather than consistent “window dressing” of debt restructuring in different forms. Banks, specially PSBS was in good pressure today in the late day trading.

After sudden demonetization, SMES may be the worst affected much more than the big corporates, because the later are already digital. As a result of consistent cash crunch & cash flow mismatch, loan portfolio of the SMES may be in great stress; even personal loan delinquencies may rise after demonetization led economic disruptions.

Thus banks may be the biggest loser in this epic experiment of demonetization as they are unable to earn any significant on the huge demonetization deposits and more over, they have to pay the minimum 4% pa for such savings deposit and there is no fresh incremental demands of loans also. 

Moreover, operating costs of the banks may have increased significantly for the demonetization led cash & compliance management. Thus, NIM & earnings of the banks may be in “deep water” for Q3 as well as Q4FY16. 

Only “windfall gain” for the banks may be sudden spurt in loan/NPA repayments after demonetization in old notes for around Rs.66000 cr. But, this may also be treated as “black/unaccounted money” by the IT/ED later, where repayment was more than Rs.2.5 lakhs in old notes (cash) and there may also be some types of litigation.

Today Govt also notified an ordinance to give legality for the demonetization and limitations to further hold the old currency notes. This may be the last effort by the Govt, desperate for an “windfall gain” out of demonetization for a “special dividend” from the RBI to give “immediate stimulus” to the “Aam Admi” (JDY accounts having zero/nominal balance) by way of “farm loan waivers” or even by “direct deposits” (desi version of helicopter money).

Although, Gov (Patel) has clearly denied such possibility in the last RBI meet of an “windfall gain” out of “cosmetic treatment” of its balance sheet without any actual P/L effect, it’s interesting to see, what RBI can do this time to protect the independence & credibility of the institution by saying “no” on the face of the Govt. As former RBI Gov, Rajan emphasized in his farewell note, that RBI as an institution must have the ability to say “no” for any illogical demands, even from the Govt, investors may be now missing the “vocal” Rajan and feeling the actual pain of “Rexit”. A healthy central bank is essential for for a country's banking system and any attempt by the Govt to directly recapitalize the ailing PSBS from the coffers of the RBI may not be taken well by the investors (FPIS); bond market & INR may react adversely and EQ market may also follow that.



 NF



Nifty May Open Flat Amid Similar Global/Asian Cues; Further Pull Back Rally Only Above 8085-8120 In Nifty Ahead Of CY End & FNO Exp



Market Mantra: 28/12/2016 (08:30)

Watch 8050-7980 & 8085-8120 Zone In Nifty Fut (Dec), Which May Open Around 8035 Today

BNF need to sustain above 18000-18150 zone for any further “Santa Rally”.

Tax Reforms Talk By The Govt May Help; But Strong USD & Oil And FPI Tax Issues May Also Be A Concern Apart From The Ongoing Demonetization Led Economical & Political Disruptions 

As par early SGX indication, Nifty Fut (Dec) may open around 8035 (+11 points), almost flat following tepid global/Asian cues.

Overnight, US economic data (consumer confidence, home sales, Mfg index) was upbeat & better than expected and in the morning, Japanese economic data came mixed (IIP below estimate; but retail sales was good/above estimates). As a result, USDJPY is gaining some traction and except EUR, USD has some strength. Due to thin liquidity for Christmas & Yearend holiday, ECB has suspended its bond buying for some days and that’s helping the EUR yields at this moment.

Back to home, after yesterday’s direct tax reform talks by the FM, NITI Ayog; i.e. panel of economic advisers of the PM has suggested more direct & indirect tax reforms for India to continue its economic reform and greater compliances & less corruptions (less creation of unaccounted money).

Although, such tax reform should have been done long before the extreme step taken like demonetization as was also suggested by the former RBI Gov (Rajan), this will be definitely a positive step, if implemented in the right spirit.

But, considering the present fiscal deficit scenario combined for both the states & the centre and a huge fall in revenue after sudden demonetization, it may also be very difficult to implement a significant lower tax regime in the immediate future for the Govt. For tax compliances, India need a robust IT infra and a social security types of cards as in a developed economy’ Aadhar Card & PAN Card may help, if implemented in a right way (data mining).

Apart from the tax reforms, “stimulus” & “dream budget” talks and any further steps towards “war against black money & corruption”, market will also look into the monthly auto sales, PMI & other high frequency data for Dec to gauze the immediate real impact of the demonetization on the economy and Q3FY16 earnings & GDP trajectory.

Demonetization led political disruptions may also hog the limelight ahead of another pay day coming shortly; but an apparent fractured “united” opposition may also be good for the BJP/Govt ahead of UP elections.

Hints for actionable trading ideas:

Technically, NF has to sustain over 8085-8120* zone for further rebound towards 8170/8200*-8245 & 8295*-8345 area for the day (under bullish case scenario).

On the other side, sustaining below 8050-8015* zone, NF may further fall towards 7980-7945* & 7915/7890*-7840 area for the day (under bear case scenario).

Similarly, BNF (LTP: 17875) need to stay above 18000-18150* area for further pull back towards 18300*-18450 & 18700*-18800 zone for the day (under bullish case scenario).

On the down side, sustaining below 17700-17600* zone, BNF may further fall towards 17500-17300* & 17200*-16975 area for the day (under bear case scenario).




NF



BNF