Nifty Bounced Back By Around 1.43% Amid Short Covering & Yearend “NAV” Buying By DII And Supported By FM’s Talk About Globally Competitive Indian Tax Regime & Some Reports By Global Fund Houses About Brightening Outlook Of EM Assets In 2017

Market Wrap: 27/12/2016 (17:30)

Technically Nifty Fut (Dec @8024) has to sustain over 8075-8115 area for further rally towards 8165-8195 & 8245-8275 zone in next few days for any further “Belated Santa Rally”.

On the other side, sustaining below 8050-8000 zone, NF may further fall towards 7940-7890 & 7840-7790 area in the short term.

Nifty Fut (Dec) today closed around 8024 (+113 points) after making an opening session low of 7907 and late day high of 8045.

Domestic market opened almost flat today amid similar global/Asian cues and Nifty attempted another break of the technically vital support level of 7900; but failed to do so as FPI(s) may have already covered their FNO short yesterday itself before going to long vacation and DII (s) may have today pressed their F1 button aggressively to pop up the NAV at the CY end (on a lighter tone !!). Incidentally, from next year, India’s FY may be changed to Jan-Dec on lieu of present April-March.

Today Indian market may also get some support after FM’s assurances about a “globally compatible” direct taxation regime in India, whereby most of the eligible tax payers can pay their taxes in a low rate & simple structured environment without any undue harassment from the IT authority. 

Although, there was already a market buzz going on for the last few days that Govt may announce some reduction in the direct taxation slabs for the “Aam Admi”  shortly, (most probably on 2^nd Jan’17, much before the budget) eyeing to reduce the “ demonetization pain” of the public ahead of UP state elections, this news of “tax reform” may have induced huge short covering from retail clients and combined with that, some value buying by institutions may be the prime reasons for today’s “Santa Rally”.

Domestic market sentiment may have also improved today after some global fund houses upgraded their outlook for the EM assets, especially bonds for the next year (2017) after recent sell off (Trump Tantrum). 

India has a better macro economic outlook within its global/EM peers having stable & strong currency, adequate FX reserves, stable CAD and lower real bond yield differential (INR bond yield differential with USD after adjustment with the respective CPI). 

But, at the same time, various global rating agencies are not very inclined for an immediate rating upgrade for India due to its high Govt debt/GDP ratio, huge banking NPA/NPL (stressed assets), tepid private investments & stressed corporate balance sheets, lack of timely implementation of various vital reforms, such as GST.

Indian market may also be supported today after another report that Govt may be seriously considering to hike the PSBS recapitalization fund for next FY-18 and also in touch with RBI for higher pay outs (dividends) this year (“windfall demonetization gain”).

Market may enter 2017 in a great uncertainty with domestic concerns of slower economic activity, tepid earnings & GDP, political risks as a direct fall out of demonetization. There may be also significant global headwinds in the form of strong USD/hawkish Fed, China jitters, uncertain nature of Trump & his actual shape of “Trumponomics”, EU political & banking risks. Also FPI(s) taxation issues & capital market tax reform plan may drag the Indian market sentiment in the coming days.

Against this backdrop of so many headwinds and too little tailwinds of “stimulus/dream budget/tax reforms”, any rally in the domestic market may be proved as yet another “dead cat bounce”, unless & until Nifty is able to sustain over 8200 zone consistently.

  

Today’s Indian market rally was contributed primarily by FMCG (ITC), metals (Tata Steel), Auto, Pharma, ICICI Bank & Infy.

ITC was on fire today after news of cigarette price hikes and better sales trend in Dec as acute cash crunch of the last month normalizes to some extent this month.

Globally, all eyes may be on the US consumer confidence data and progress of bail out effort of Monte Paschi. As par reports, the bank now requires around EUR 8 BLN against earlier estimate of EUR 5 BLN and for a Govt sponsored bail out programme, Italian Govt may also be required to take the ECB/EU approval. Although, eventually, all Italian banks may be rescued by the Govt & ECB, the huge amount of stressed assets of around EUR 352 BLN (NPA) may be a cause of grave concern in 2017.

SGX-NF