Market Mantra: 07/12/2016
(08:30)
Considering The
Imminent Risks Of Economic Slow Down And Lower Core Inflation Trajectory As A
Result Of Demonetization, RBI May Oblige To Cut Repo Rate @0.25% Without
Corresponding Adjustment Of Reverse Repo Rate To Help Banks; But 0.25% RBI Cut
May Be Already Discounted By The Market Also
Watch 8225-8275 & 8155-8110 Zone In
Nifty Fut (Dec), Which May Open Around 8175
As
par early SGX indication, Nifty Fut (Dec) may open around 8175 (+10 points), almost
flat amid neutral global cues.
Overnight
US DOW Fut closed in another record amid mixed economic data yesterday (larger
trade deficit and better than expected durable goods & factory orders) and
despite continuous “Twitter Tantrum” by Trump, USD is not falling so great.
Back
to Dalal Street, all eyes will be on the “Mint Street” today, when RBI will
unveil its policy decision at 14:00 hrs.
Market
consensus is 0.25% reo rate cut by the RBI this time, considering the real
concerns about subdued growth and lower core inflation in Nov as a direct
result of demonetization.
Headline
CPI may dip around 4% this time and with that, theoretically, RBI also have
scope to reduce repo rate by 0.25% to 6% and thus make the RRR as around 2%,
which is well within RBI’s new target.
But,
RBI may also “surprised” the street by not reducing the corresponding reverse
repo rate, which stands at 5.75% as of now to provide banks some extra spread
and thus may not tweaking the 100% CRR on the excess demonetization deposits.
Having
said that, although RBI is in great pressure to act this time of crisis from
almost all quarters, RBI may also stay pat or may make some hawkish comments
about future cuts (in Feb-Apr’17) for concerns of Hawkish Fed (strong USD),
higher price trajectory of Oil as a result of OPEC cut, incomplete
transmissions for previous rate cuts by the banks and the liquidity surge in
Indian Banking System after demonetization.
Any
drastic rate cuts by the RBI or even very dovish monetary policy outlook may make
INR weaker against USD in the days ahead, which may do more harm to the economy
and the market.
Although,
core inflation may dip for the demonetization, food inflation might surged as a
result of supply disruptions on the ground. This will make headline CPI more or
less around 4.5% in the days ahead.
As
par some reports, Indian GDP is expected to contract by around 0.4% on an
average every month for this demonetization, until full normalcy
(remonetization) take place. Going by the present trend of supply of new
currency notes and related issues of logistics & ATM recalibration, it may
take another 3-6 months for full remonetization. Thus, H2FY17 GDP may suffer by
at least 2% in the coming months.
Technically, NF has to sustain over
8195-8225* zone for further rebound towards 8275*-8330 & 8395*-8430 area
for the day (under mild to extreme bullish case scenario).
On the other side, sustaining below
8155*-8110 area, NF may further fall towards 8060*-8000 & 7940-7900* zone
for the day (under mild to extreme bear case scenario).
Similarly, BNF (LTP: 18478) has to
sustain over 18650 area for further rally towards 18800-18950* & 19100*-19300
zone for the day (bullish case scenario).
On the downside, sustaining below 18450
area, BNF may further fall towards 18350-18200* & 18100-17800* zone for the
day (bear case scenario).
SGX-NF
BNF
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