Market
Wrap: 31/01/2017 (19:00)
Looking at the chart, Nifty Fut (Feb @8586)
has to sustain over 8665-8705 area for further rally towards 8745-8795 & 8855-8895
zone in the short term (under bullish case scenario).
On the other side, sustaining below 8645-8605
zone, NF may fall towards 8545-8505 & 8455-8390 and 8315-8220 area in the
near term (under bear case scenario).
Today’s Parliament speech by the Prez
may be more sounding like a “populist” budget for tomorrow rather than a “popular”
(market friendly) one, keeping in eyes on the forthcoming state & 2019
general election after demonetization pain.
Nifty
Fut (Feb) today finished around 8586 (-69 points) and closed below 5-DEMA
(8605) for the 1st time after several trading days of upwards trend
in the recent times. NF today made an opening minute high of 8639.80 and
closing session low of 8576.25.
Domestic
market today opened in negative tone mirroring tepid global cues as Trump
tantrum continues over the immigration issues. Moreover a report that Trump is
in the process to restructure the controversial H1B Visa by hiking minimum
salary more than double from the present $0.60 lakhs to $1.30 lakhs has shaken
the sentiment of the Indian market (IT outsourcing sector). Also, there is some
report that Trump will meet the Pharma industry later today to “fix” their
exorbitant drug prices issues.
Although,
these are all the known election rhetoric of Trump, the manner in which these
are being imposed may have got the market on wrong foot and overall narratives
has been changed from “Trumponomics” (fiscal/infra spending, tax cuts,
deregulation) to trade protection & “America First” theme. As a result,
USD/US bond yields are falling fast across the board and it seems that Trump
& Co is engaging in a currency war with other nations, including
Germany/EU, terming EUR as significantly weak in the own interest of Germany.
Trump administration may be now realizing that an exceptionally strong USD will
be not good for US economy & its corporates and thus may be trying to “talk
down” the USD along with various “executive actions”.
Today’s
apparent dovish stance of the BOJ has no effect on the USDJPY and Yen is
getting stronger, which may be an indication that more than economics/central
bankers, US politics & Trump is controlling the FX world as of now.
Although,
Indian Govt & NASCOM are lobbying hard with the appropriate US authorities
for the H1B Visa issues as almost 85% of the quota is being used by the Indian
companies, Trump may be in “no mood” to excuse despite preferred relation with
NAMO.
Apart
from IT woes, today’s market sentiment may be also hurt as Prez’s address to
the Parliament, which is effectively a “My Govt” document & visionary
statement sounds like more “populist”. Also, economic survey prepared by the
Govt’s CEA may be more hawkish (owlish) than the market perception, may also
made the market cautious ahead of budget tomorrow.
The
economic survey has estimated the FY-17 & FY-18 GDP growth as 7.1%
(expected) and between 6.75-7.5% (may be below median estimates) amid uncertainty
& spillover effect of demonetization. This may be also showing that
Govt/Policymakers are itself not confident about an early revival of the
economy contrary to the earlier narratives. Thus, tomorrow’s MFG PMI data for
Jan’17 may be quite important (estimate 49.7; prior: 49.6) apart from the
monthly auto sales numbers.
Market
will also keenly watch actual/estimated FY-17 & projected FY-18 GDP/fiscal
deficit figure. Although, for FY-18 it was earlier pegged at 3%, most analysts
are expecting it to be between 3-3.5% (3.3% ?), keeping in mind about
incremental Govt capex after demonetization. Anything above 3.5% may be
disastrous for the market as it will make rating agencies more vulnerable to
downgrade India.
But, today’s economic survey indicated that the Govt may
prefer to stick to the fiscal consolidation roadmap in the budget tomorrow and
that also helped the market to some extent. High combined fiscal deficit of
around 6.5% in India, along with high Govt debt/GDP ratio, very low per capita
income, issues of “twin balance sheets”, tepid private investments may be some
of the deterrents for the rating agencies to upgrade Indian sovereign rating as
of now. Also lack of effective implementation of reform policies, such as GST,
Land & Labour and demonetization fiasco may be some of the other factors
going against Indian economy despite Govt’s best effort to convince the global
rating agencies.
Today,
after market hours, Govt released its revised GDP growth for FY-16 from 7.6%
earlier to 7.9%; it may be positive for the FY-16 GDP/fiscal deficit ratio as
absolute amount of GDP has increased. But, ultimately to the vast Indian demographics,
fiscal deficit is meaningless, unless “employment deficit” issues are being
effectively countered and that may be the biggest “political risks” for India.
Market
will also watch keenly about any more stimulus to the economy, cuts/rejig in
personal & corporate income tax, thrust on social sector schemes,
affordable housing, digital economy etc in the budget tomorrow to reduce the
short term pain caused by demonetization suffered by the “Aam Admi” for a long
term gain. BTT may be imposed tomorrow.
But
uncertainty about actual revenue in FY-18 after demonetization effect spill
over may also make the FM little worried and eventually, Govt may project a
wider band (deviation ?) from the earlier fiscal consolidation roadmap.
Investors
will also watch any capital market taxation reform as a “contribution towards
country’s growth” and any redefinition of LTCGT from one to two/three years may
be not good for the market sentiment. Market may also give a knee jerk
reaction, if fine prints of GARR & other FPIS taxation issues look scary.
SGX-NF
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