Wednesday 7 December 2016

Nifty May Open Flat Following Neutral Global Cues; All Eyes Of “Dalal Street” Will Be On “Mint Street” Today—Will RBI Oblige?



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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