Technically
Nifty Fut (Dec) now (LTP: 8210) has to sustain over 8255-8275 area for further
rally towards 8335-8375 & 8445-8485 zone.
On
the other side, sustaining below 8175-8145 zone, NF may further fall towards 8065-8000
& 7955-7900 area in the near term.
Market Wrap: 01/12/2016
(17:30)
Nifty
Fut (Dec) today closed around 8210 (-50 points) in a subdued day of trading
after making an opening session high of 8272 and closing minutes low of 8205.
Indian
market today opened almost flat following tepid global cues after yesterday’s
block buster rally in oil, helped by the historic OPEC deal. But, costly oil
may not be good also for an oil importing economy such as India and also for
China & US. Overnight US market closed almost flat despite rally in energy
shares.
Today,
China PMI data came above expectation, but that may be also a seasonal factor
in Nov, when Govt supported real estate market there. Now, with increasing
regulations and tighter monetary policy by PBOC, this may not be repeated in
Dec. Metals were under pressure as a result of this China tightening and tepid
AU data, despite “Trumpflation” & more infra spending.
Another
global headwind for the Indian market may be consistent strength in USD as a
result of upbeat US economic data and surging bond yields for the “Trumponomics”.
FPI(s)
are consistent sellers in the Indian market for the last few months even before
the US election, when there was no “Trumpism” probability, because the recent
trend in nationalistic politics (Brexit) may have induced an urge to look into
the “Real Streets” rather than “Wall Streets” for the policymakers/politicians and
thus, whoever be the next US President, be it Clinton or Trump, is bound to
spend, more or less.
Now,
with Trump, market is assuming that he is fiscally loose and monetary tight;
i.e. there may be some structural shift in US/Fed monetary policy and fiscal
stimulus will be the main theme along with gradual reduction in monetary
stimulus.
The
same trend may also be followed by other major economics like Japan & EU,
where despite years of QQE, growth & inflation is nowhere and the recent
geo-political events like Brexit, Trumpism has proved that such “black swan”
can influence the world of currencies in a matter of days, which QQE has failed
to do over the years. GBP slumped overnight as a fallout of Brexit and Yen also
depreciated significantly against USD after “Trumpism” much to the delight of
BOJ, which has failed to do so despite months of various “experiments” under
Abenomics/Kuroda.
Thus
the days of global flow of “easy money” may be at their end and the present “Trump
Tantrum” may also cause more EM currency carnage. INR may be more affected for
the demonetization led disruptions despite RBI’s best effort to stabilize the
G-SEC bond yields in the coming days and that may accelerate FII (s) outflow.
Till
now, DII(s) are absorbing a large part of the FII(s) selling, but it may be
very tough even for the DII in the days ahead as the demonetization & “war
on black money” approach by the Govt may even affect the investing capacity
& sentiment of the Indian retail clients. FII & ETF and DII liquidity may
be one of the main factors for the stupendous rally for Indian market since
March’16 despite stretched valuations.
Domestic
market sentiment may be also affected today after Markit Mfg PMI data came at
52.30 for Nov against prior figure of 54.40 (estimate: 52). This is the biggest
one month decline since March’13. This may be an indication of slower economic
activity after demonetization led business disruptions as feared. In Dec, the
figure may be further worsened.
Today,
Maruti & Eicher reported blockbuster Nov sales quite unexpectedly. But, on
closer scrutiny, it came on the back of surge in sales in lower end models for
Maruti (Alto & Wagon-R), which may be an indirect beneficiary of
Demonetization in Nov as people with “black money/unaccounted cash” may have
rushed to buy these models, rather than surrendering it to the Govt or destroy
it (there are many loop holes in the system to utilize unexplained cash without
going to banks). The same may be true for Eicher and other 2-W makers and this
Nov surge in sales may not be repeated in the months ahead.
The
true state of ground economy after demonetization may be felt by the slump in
domestic sales for M&M and also for Ashoke Leyland, where LCV/UV/Tractors
sales has fallen significantly more than market consensus, which may not be
good for the core Indian economy.
Towards,
the closing session of the day, market sentiment was further deteriorated after
R-JIO announced another extension of the freebies till March’17, which resulted
in plunge of telecom stocks instantly. As expected, R-JIO will now give more
thrusts to the “Digital Indian Economy” theme and on its JIO-Money (like PayTM).
The
present R-JIO freebies may be great for the consumers, but may not be good for
the Reliance investors. It will be interesting to see, how much tariff R-JIO
can generate from its present pool of “free customers” (almost whole India),
once it starts giving service commercially.
Another
factor is that due to present political deadlock and Demonetization led disruptions;
passage of final GST & implementation of the same from April’17 looks very
difficult and also may be impossible. Naturally, Govt may say that it will
implement the GST from Sep’17 for the time being (already hinted by the FM few
weeks ago).
But,
considering series of state elections and 2019 general election, for which
ground preparation may be already started or will be at its peak in late 2018,
Govt may not risk taking another “political suicide” as the present
Demonetization “master stroke” may have already taken all the “stamps, bails
& the pitch”; there may not be any “pitch” left for playing another “master
stroke” in the foreseeable future.
Indian
market may not be discounted till now for a “No GST” till 2019 general
election.
Also,
as par latest reports, an amount of around Rs.11.50 lakh cr has been deposited
with the banks in the old 500 & 1000 notes since announcement of the
Demonetization. It seems that as par the latest trend, more than the estimated
Rs.14.50 lakh cr may be deposited with the banks till Dec-31 and with the RBI
till March’17, especially after the Govt announcement of another VDS/Amnesty
scheme @50% tax (fake or counterfeit notes entering into banking system as
banks may got more than the official circulation of the same by the RBI).
Govt
may be hoping for a windfall gain for Rs.3.50-4.50 lakh cr as this amount
hoarded by the so called “idiot black money holders” may not be returned into
the system for fear of high taxes & prosecution. But the same were not “thrown”
at all to the “Ganges or Yamuna River” as expected and instead may be already converted
into new notes or will be converted soon and contrary to the earlier perception,
it may be a liability of the RBI in its balance sheet, where an expenditure of
around Rs.1.50 lakh cr may have already incurred in the P&L A/C as a result
of the Demonetization, apart from the bank’s individual expenses, which may be
also huge.
Thus,
overall collateral damage to the Indian economy may be more than the expected benefit
as a result of this Demonetization as 85% currency note replacement at one “masterstroke”
may not be so easy;
rather than its now proving as “administrative nightmare” in a country like India, where “cash is king” with very
little digital technology/education for most of the people.
As
par various reports, only 6% of “black money” may be trashed into old notes and
the rest has already converted into other forms of financial assets either in India or
out of India. Only 0.02% of the people of India may hold some types of “unaccounted/black
money” and for that, this Demonetization effort by the Govt may be an indication
that Govt believes all its citizens as some types of “crooks” despite its best effort to divide Indian into a "rich" & "poor" class (with or without black money).
As
some analysts/economists are terming the present Demonetization as “running an
economy without oxygen” or “intentional bursting of a racing car tyres” in the
Indian context, the same may not be wrong at all despite the current
Demonetization might be turned
virtually into another VDS/Amnesty scheme as the Govt does not have any
intentions for the reform of “political donation” system in our country, where the
vicious cycle of corruption starts first and ends at the bottom of the economy
& bureaucracy (more Governance & more
corruption). The root cause of the corruption (higher taxation & Governance) and specific "patients" (black money holders) may be treated first rather than the symptoms (old currency notes) & vast "healthy people" ("white money holders").
It's also certain that the present chaos of Demonetization may be fizzled out by next 3-6 months, but the long term effect on the Indian consumption story may be prolonged for at least next 5 years as the similar "surgical strike on black money" has demonstrated the same trend in China.
SGX-NF
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