Market
Wrap: 17/01/2017 (19:00)
Looking at the chart, Nifty Fut (Jan
@8403) has to sustain over 8460-8485/8510 area for further rally towards 8545-8585
& 8645-8685 zone in the short term (under bullish case scenario).
On the other side, sustaining below 8425-8380
zone, NF may further fall towards 8335-8295 & 8240-8170 area in the near
term (under bear case scenario).
Domestic concerns of GST delays, new
political equation in UP and a “Robin hood” type of populist budget, capital market & FII taxation issues & OPM
contraction of Havells in Q3FY17 after demonetization may have caused some pressure
on the market today.
Nifty
Fut (Jan) today closed around 8403 (-29 points), just 0.34% lower after making an
opening session high of 8448 and late day low of 8392.
Domestic
market today opened in an upbeat note following yesterday’s consensus on GST
dual control mechanism, but failed to hold the opening gain as market
participants may be very cautious ahead of the much awaited & scheduled “Hard
Brexit” talks by the UK PM.
Also,
USD was weak across its G-10 peers after a Trump comments in a WSJ interview
about adverse effect of “Too strong dollar” for the US economy and repeated
rhetoric about Chinese Yuan devaluation, terming China as a “Currency manipulator”.
Trump’s
concerns about strong USD were also echoed by one of his prominent economic
adviser. All these concerns about a strong USD is being seen as a blow to the “Trumpflation”
and “Trump Trade” was in pressure today with fall in USD/US bond yields &
US stock Futs and may also be an early indication about “uncertainty” of the “Trumponomics”.
Overall,
global “risk on” trade was gloomy amid these fears of “Hard Brexit” and an
unpredictable Trump.
Regarding
“Hard Brexit”, although market is already aware of the possible extracts of May’s
speech & stance, market will concentrate on the ongoing legal process in
the UK SC after this event. As par some reports, UK SC may eventually called
for a necessary Parliament approval for invocation of the Article-50 and this
may further delay the whole Brexit process. Thus, it may be another instance of
“sell the rumour and buy the news” today after this hard Brexit talks by the UK
PM (global “risk on” sentiment may again come back after the event as the news
may be already priced in).
In
the scenario of no Parliament approval, this Brexit process may be subjected to
another referendum or even be treated as cancelled and that (No Brexit) may be
one of the greatest surprises in 2017. A weak GBP has helped a lot for the UK
economy after the unexpected Brexit referendum and it was also helpful for some
of the Indian companies having significant business interest in UK (such as
Tata Motors). In the scenario of a stronger GBP (no Brexit), some of these
gains may also evaporate, although it’s too early as of now.
Domestic
market sentiment was also under pressure today after reports of gloomy response
from the global investors for India in the ongoing WEF at Davos. Investors are
concerned about slow progress of structural reforms, administrative hurdles;
political risks after demonetization and overall trade protection rhetoric from
US President elect Trump. However, global investors are now preferring US, UK,
China, Japan ahead of India and some other EM(s). But they are also hopeful
about India’s appeal of 4-D (democracy, demography, demand & development)
and ‘Modinomics”.
Although,
Indian market sentiment was upbeat initially after yesterday’s consensus on GST
dual control mechanism which was viewed as most contentious after the RNR
fixation issues. As par reports, GST may be implemented from July’17 instead of
April’17; still the July-Sep’17 period may be in doubt on the back of series of
state elections, various political & economic disruptions after
demonetization fiasco and lack of preparedness for the business community.
Also,
rollover of GST from H2FY18 may be seen as another “disruption” after the
demonetization and Indian economy may not be ready yet for two successive
disruptions or structural reform in a short span of time, especially when full
remonetization is still pending.
Also,
the delay in GST from April’17 to another uncertain period (July-Sep’17) may also
complicate the FY-18 budget revenue estimates, especially for the indirect
taxes. Market may be also concerned about any “Robin Hood” types of approach in
the forthcoming budget to compensate the “short term pain” of the “Aam Admi”
for the “long term gain” ahead of series of state elections in 2017-18 and also
looking for the 2019 general election.
Market
may be looking for a “popular dream” budget and not a “populist” budget from
the Govt this time as too much “helicopter money” may translate into a higher
fiscal deficit much above the projected 3.5% of GDP in FY-18. Already, India’s
combined fiscal deficits are above comfort zone as of now and we have yet to
see the full impact of the demonetization on the revenue front.
Today’s
tepid Q3FY17 numbers from Havells & contraction in the OPM may be an early
indication about adverse effect of the demonetization on the Indian economy.
Havells, being a direct consumer facing company, may be a reflection of Indian
consumption story.
Today,
Indian market was also dragged by RIL to some extent after its Q3FY17 numbers
failed to beat the market estimates in a significant way and also reported a
below consensus GRM. The stock may be under pressure after the recent rally
amid significant capex & debt for its telecom arm (R-JIO), which is yet to
start any revenue so far. An ever extending “free” business model may be great
for the consumers, but not for the investors, despite FCF from its oil &
gas business.
SGX-NF
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