Nifty Galloped By Another 75 Points After Hitting Multi-Month High Amid Optimism Over Budget & Positive Global Cues; What’s Next For Budget Week?

Market Wrap: 27/01/2017 (21:00)

Looking at the chart, Nifty Fut (Feb @8690) has to sustain over 8705-8725 area for further rally towards 8795-8900 & 8995-9075 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8665-8635 zone, NF may fall towards 8585-8455 & 8305-8205   area in the near term (under bear case scenario).

Nifty Fut (Feb) today closed around 8690 (+0.87%), almost at the day high (8698) after making an opening session low of 8641; in the process Nifty gained more than 3.5% for the week and also hit the late Oct’16 high prior to demonetization fiasco and also rallied by around 10% from the post demonetization low of around 7895 on the back of better than expected/mixed Q3 earnings so far, specially from some of the financials/banks crushing the demonetization blues, some fall in USD after “Trump Trade” fades, better poll prospect of BJP in the forthcoming state elections and above all, huge expectations for a “dream budget” next week.

Indian market today opened gap up, catching the last two day’s global rally (US) after upbeat Q4 earnings, mixed/better economic data, some specific executive actions by Trump after assuming the charge of the Oval office despite significant concerns of an imminent “trade wars”, thanks to Trump’s “Twitter Tantrum”.

Soon after opening in positive tone, domestic market today again rallied quite smartly amid huge expectations of a market friendly budget next week. But, it came off the high after some reports flashed that Govt is “committed” towards fiscal discipline and it finds no merit in letting fiscal deficit target to slip significantly in the FY-18 budget as concerned being expressed by different rating agencies/analysts. Though, adherence of the fiscal discipline is an well come step and should be viewed as very positive, it may be also an indication that Govt may not be very inclined for a huge incremental capex (fiscal spending) next year in the backdrops of various uncertainties regarding revenue collections (absolute quantum of GDP after demonetization, uncertainty about implementation of GST, direct & indirect tax collection, change in financial year in FY-18 etc). 

In any way, market has already rallied quite a bit on the expectation of a “popular budget” and it may be another example of “buy the rumour and sell the news” next week after Budget, especially if it proves to be very “populist”, instead of “popular or prudent” budget.

Along with budget, and ongoing Q3FY17 earnings, market may keenly watch Auto sales numbers and PMI data for Jan’17 next week. This may be an important indicator about true state of the economy after three months of demonetization and various loop holes regarding laundering/using old SBN(s) ends on 31^st Dec’16.

Today overall market sentiment was affected to some extent, after ITC result shows that its FMCG business was affected significantly in Q3FY17 as a result of an initial impact of the demonetization.

But, banks have supported the market today on the hopes for upbeat results defying the demonetization narratives. RIL & some other Oil & gas counters also helped the market today after reports of better prospect of GRM in Q4FY17 on the back of favourable movement in crude oil.

Also, a Noumura report that Q3FY17 rural wage growth rises to 7.3% defying the demonetization worries, thanks to Govt initiative of minimum rural wages effective from 2016 may have helped the market sentiment; although Numura has also warned about adverse effect in Q4FY17 and susbsequent quarters.

After market hours today, Govt has confirmed that the controversial GAAR is to be implemented from FY-18 onwards with adequate safe guards and also in a fair & effective manner. We need to watch the market/FII reaction for this in the coming days.

Although, FY-18 budget might be quite tax friendly (both personal & corporate), market may be also worried about any further capital market tax reform and re-definition of the LTCGT & FPIS double/triple taxation issues apart from any adverse effect of GAAR.

Meanwhile, US economic data came bad today with GDP at 1.9% for Q4 against estimate of 2.2% (prior: 3.5%). Core durable goods order and Michigan Consumer sentiment flashed in line with expectations. Although, the headline GDP number came bad, on closer scrutiny, the unexpected drop may be because of poor inventories. But, underlying trend of improvement in business investment, robust consumption and better wage numbers may be positive for overall US economy and this poor GDP number may also be revised upwards in the months ahead. Thus, market will look into next week’s Jan’16 NFP numbers and Trump’s Twitter handle; clearly, politics may be preferred above economics for US & global market in the days ahead.

 SGX-NF