Nifty Closed Almost Flat (+0.11%) After A Dull Day Of Trading As Both “Bulls & Bears” Continue To Be In The Sideline Ahead Of ECB & Trump Day And Indian Budget & More Q3 Earnings

Market Wrap: 19/01/2017 (19:00)

Looking at the chart, Nifty Fut (Jan @8439) has to sustain over 8485-8510 area for further rally towards 8545-8585 & 8645-8685 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8460-8435 zone, NF may further fall towards 8370-8305 & 8235-8175 area in the near term (under bear case scenario).

Apart from global cues, apparent “horror” result from Axis Bank may spook the market sentiment tomorrow. Also, some surge in NPA for Yes bank despite flat & in line with estimate result may have failed to ignite the scrip & the overall market sentiment.

As par some reports, EC has asked the Govt to file an “official reply” by tomorrow 10:00 HRS regarding the postponement of the budget scheduled to be held on 1^st Feb as of now. Although as par Govt sources, presentation of the union budget on 1^st Feb is “almost a done deal” as it will not announce any state specific policy/project for the poll bound states and the Govt intention of a 1^st Feb budget was made clear in Nov’16 itself, any adverse decision by the EC in this issue may also jeopardize an imminent source of “market/economic stimulus”. EC may take any tough decision in this regard as five poll bound states represent almost 1/5^th of the economy.

Nifty Fut (Jan) today closed around 8439 (+9 points) after a range bound day of trading, in which it has made a late day session high of 8454 and a day low of 8409 ahead of ECB meeting later today and the much awaited Trump’s inaugural ceremony tomorrow. Trump is also expected to deliver some pre-inaugural address later in the day.

As par reports, President Trump is expected to start his office with a storm and may deliver 4-5 executive decisions on day one itself (?). It might include some official letters for Mexico & Canada to ratify the NAFTA deal and some other trade protection rhetoric with a perception of making “America great again” (H1B Visa/Job loses/Pharma pricing etc).

Regarding his fiscal/infra spending, Trump is expected to adhere his basic plan of $1 tln in 10 years; i.e. $100 bln in a year infra spending, which might include some existing as well as some conceptual infra projects in US worth around $135 bln. If Trump announce such plan on his 1^st day at office or later (subjected to US congress approval), then it may ignite metals (copper, steel etc) and also cement sectors for the US. But, again it’s a known factor to the market (market hs already rallied on such stimulus hopes) and the actual implementation and any real demand transmission & its effect on the earnings of the companies may be the key & take significant time.

Trump may also announce cut in corporate tax to 15-20% from the present 35% and do away with several exemptions to make it simpler as par global standards and may also make US overseas profits as tax free for redemption to US as its being already taxed in the foreign country. The simpler tax proposal may be passed in US congress without any delay as there is a broad consensus. 

Looking forward, Indian Govt may have to ensure such comparable global tax regime in India to attract more FDI. 

Apart from Trump & Co, all eyes will be on the ECB today. Although there is no probability of any policy change by ECB today, market will keenly watch Draghi’s comments in the presser and Q&A after the policy announcement for any hints about tapering after Dec’17. But Draghi is also expected to be on the sideline as the present EURUSD matrix may be ideal for overall EU economy & its export competitiveness. 

As a result of depreciated EUR for the last few months because of “Trumpism”, overall EZ economic data is quite decent except core CPI, which is still languishing around 1.5%, much below ECB’s target of 2%.

But, more than any central bank action for ECB as well as BOJ, Trump’s comments are driving the FX market for the last few months and basically ECB/BOJ and other G-10 central bankers are enjoying the advantage of a depreciated currency without any extra monetary stimulus effort (QQE). Thus, all the G-10 central bankers should be thankful to the US President-elect Trump & Fed for the USD’s relative strength, that their currencies are down now significantly, which was not achieved earlier despite decades of QQE. 

Thus, its divergent monetary policy between Fed & other G-10 central bankers including ECB & BOJ are driving the USD higher; hawkish Fed is thinking for a multiple rate hikes in 2017-19, where as other G-10 central bankers are on a neutral/dovish stance. 

Trump & Co may have also realized that too strong USD may not be good either for US economy or the US corporates and going forward, his “Twitter Tantrum” may also be used to talk the dollar down; i.e. another wave of currency war may be also imminent and that will not help the overall global trade & globalization in the coming days.

After confirmation of “Hard Brexit” stance (subjected to Parliament approval of the EU deal & not the invocation of the Article-50 itself), all eyes will be on 24^th Jan, when UK SC is expected to deliver its judgment regarding approval from the Parliament for invocation of the Article-50. After the recent change of stance of the UK Govt to take the Parliament approval for the final EU deal, market is expecting that SC will give favourable verdict in favour of the Govt stance on Brexit. Any “real Brexit” may cause significant job losses for the UK as various big investment banks are already considering shift of base from London to elsewhere (Paris/Berlin). It may also affect the operations of some of the big Indian IT companies (TCS/Infy/Tech-M etc).

Back to home, domestic market may be waiting for the “dream budget” and more earning & guidance clues before jumping on the board. After market hours today, Axis bank has flashed its Q3FY17 numbers which may be a “horror show” and can make the scrip fall tomorrow. Numbers from Yes bank may be also flat (QOQ) and largely in line with market estimates; although there is slight incremental pressure on the NPA front. Rather than Q3, where various loopholes were available there to launder the old demonetized notes to generate “business”, Q4 numbers may be more vital to gauze the actual effect on the economy after demonetization.

Today PSBS has rallied by some extent after favourable verdict from the DRT about recovery proceedings in the infamous KFA case. But, on a closer scrutiny, it may be very doubtful as almost all the domestic assets (direct or indirect) are already attached and banks are not finding suitable bidders/buyers for those also. Apart from the exorbitant rates, nobody is also interested to touch disputed property/assets. Thus, going forward, stressed assets resolutions by the banks may be also a headwind as such supply of assets is much more than the actual demand and overall market is also depressed, especially after demonetization.

All eyes may be also on the EC & Govt stance regarding any final decision about budget day. Any adverse decision from the EC may cause extreme volatility in the market.

 SGX-NF

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