Market Wrap: 26/12/2016
(17:30)
Technically Nifty Fut (Dec @7918) has to
sustain over 8000-8075 area for further rally towards 8130-8185 & 8225-8285
zone in next few days for any year end “NAV” rally.
On the other side, sustaining below 7985/7940-7900
zone, NF may further fall towards 7840-7790 & 7700-7645 area in the short
term.
Looking at the chart, 8075-8200 zone
may be now a big technical challenge for the NF and consecutive closing below
that, it may fall towards 7525-7425 area by next few weeks, when volumes (FII)
return to the market.
Similarly, for BNF (LTP: 17678),
sustaining below 18000 zone, it may fall towards 17450-17300 & 15850-15550
by next few days.
Nifty
Fut (Dec) today closed around 7918 (-77 points) despite FM’s assurances about
no official proposal of LTCG tax on equity market.
Domestic
market today opened in a negative note following tepid Asian cues (lower China
& Japan market due to currency woes) and some weekend comments by NAMO in a
SEBI event regarding overall poor contribution of taxes by the market participants
in the “development” of the nation despite earning “huge profits”.
NF
came down soon after making opening minutes high of around 7970 and most of the
day gyrated around session low of 7896 as it seems that market is not convinced
about FM’s assurances regarding treatment of LTCGT.
From
the overall comments of the PM on Saturday at the SEBI event, it appears that
capital market tax reform may be a part of Govt’s present stance of “war on
black money”. It’s may not only be the LTCGT alone, but may also cover other
aspects of tax reforms for Indian capital market.
As
par some market buzz, although Govt may not introduce LTCGT again after 365
days of P/L realizations, it may change the very definition of the same and P/L
realizations only above 2/3 years may be categorized under LTCG and may not
attract any capital gain taxes; i.e. P/L realizations up to 2/3 years may be
treated as short term gain, in lieu of present 1 year and may attract STCGT. (as par present norms in the unlisted securities).
But,
it’s not only the LTCGT factor, but there may be other major capital market tax
reforms to plug various loopholes and suspected money laundering activities
using the stock market routes; like round tipping of probable domestic “black
money” through the FII-P-Notes; issuance of bonus shares; using some penny
scrips to show bogus income and conversion of “black money” into “white money”
etc. Govt may take some action of the P-Note mechanism and revise various
FPI(s) tax treaties. There is already some confusions about double taxation
issues for the FPI(s).
Govt
may also use the recent “Benami Property Act” against suspected DEMAT A/C
having money laundering activities or using unaccounted money to invest in
stock markets in an effort to continue its “surgical strike” on the “black/unaccounted
money”.
It’s
clearly this fear of more “deep surgery” in the capital market may have spooked
the market today along with repeated warnings about more “surgical strikes on
the black money” in the coming days after 31st Dec’16 and more
economic disruptions, despite hopes of some “helicopter money” and a “dream
budget” aimed at reducing “short term pains” of the “Aam Admi”, who are so far
deprived of any “gains” after demonetization.
Further,
in the absence of any positive cues on the domestic front as well as in the
global/Asian market, Nifty drifted to lower & lower and FPI(s) also exiting
fast considering their yearend obligation and better investing opportunities in
their home (US/DM), coupled with prospect of “Trumponomics” and strong USD/US
bond yields (hawkish Fed in 2017) & relatively less uncertainty as in India
today.
Like
Trump, NAMO may also be proving as quite “unpredictable” for the last few
months after the sudden “surgical strike” at LOC, followed by another “surgical
strike” on “black money”. Nobody really have an idea, what NAMO can do the next
day !!
The
sudden decision of the demonetization without much preparation at the ground
level and subsequent changing narratives almost every day may be putting an
element of great uncertainty in the minds of the investors, especially the
FPI(s).
There
may be no doubt about intentions of “war against black money/corruptions”, but
the procedure of the same (demonetization) may have scope for serious debates.
Overall
collateral damages by the demonetization done to the economy may be more than
the intended benefit and the narrative of “short term pain” for “long term gain”
may be an illusion in the minds of the common people of the country, where “unaccounted
wealth creation” may be seen as a “high social status” for decades after
decades. The “celebrity” status of the so called “black money” holders may not
be changed much even after demonetization, as “graft/corruption” may be a
common practice in a country like India extremely higher rates & complex structures
of tax and too much regulations/bureaucracy. Grafts & corruptions exist in
India for long time, not only in currency notes, but by also various others “novel
ways”.
Sudden
decision of the demonetization just ahead of the vital winter session of the
Parliament, waiting for passage of the full GST bill may also raise question of
Govt/BJP’s own credibility about smooth passage of GST as such action in a
normal circumstances (no runaway inflation, no huge currency devaluation etc)
is bound to raise huge political protests and vitiate the whole atmosphere of
political consensus needed for a smooth passage & implementation of the
GST.
Thus,
the sudden decision of demonetization and Govt/BJP’s stance of “war against
black money/corruptions” may be turning out for a “political war” not only for
the forthcoming series of state elections in 2017; but may also be a “do or die”
situation for the 2019 general election, applicable for both BJP &
Cong/united oppositions. A successful rapid remonetization and an end to the
people’s misery may boost the prospect of NAMO in 2019’ otherwise RAGA & Co
may have the last laugh and more chaos.
Now,
all will depend upon the pace of the full remonetization (at least 80-90%),
recovery of the economy as “Aam Admi”, especially those at the lower end of the
pyramid may be greatly affected due to the immediate effect of the cash crunch.
Thus,
the sudden decision of the demonetization without adequate preparations for the
remonetization may be turning out to be a “political & economical blunder”
for the NAMO instead of a “masterstroke” and this may be the biggest “political
risks” for India in 2017-19, unless NAMO wins this “political gamble”.
It
may be a “do or die” situation for both NAMO & RAGA, keeping an eye on not
only 2019 general election, but also for next ten years; but investors,
specially FPI(s) may not be amused for such uncertainty for long despite India
being a “sweet spot” in the global economy and has appeal of 5D; i.e.
democracy; demography; demand; development & deregulation (?).
Apart
from democracy & demography, the other 3D; i.e.
demand/development/deregulation may be put in peril after demonetization led
economic & political disruptions (short term effect).
Also,
there may be negative long term effect on the consumption (demand) as a result
of Govt’s stance of “war on black money”, even after remonetization.
SGX-NF
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