Market
Wrap: 25/01/2017 (19:00)
Nifty
closed the Jan series almost 500 points up at pre-demonetization level of 8600
ahead of Budget next week; what’s next for Feb series?
Looking at the chart, Nifty Fut (Feb @8613)
has to sustain over 8675 area for further rally towards 8725-8785 &
8890-8995 zone in the short term (under bullish case scenario).
On the other side, sustaining below
8635 zone, NF may fall towards 8465-8375 & 8305-8155 area in
the near term (under bear case scenario).
Nifty
Fut (Feb) today closed around 8613 (+1.22%) after making an opening minutes low
of 8470 and closing session high of 8622.
Domestic
market today opened in a slight positive note following upbeat global cues
supported by overnight US market. But soon after opening, Indian market rallied
quite smartly on the FNO Exp day amid huge expectations for the FY-18 budget to
be presented next week. Also, most of the Q3 earnings are coming “upbeat”
contrary to the earlier perception of demonetization related economic
disruptions and Nifty reclaimed to the pre-demonetization level, waiting for
budget and more earning cues next week.
Yesterday’s
US economic data & earnings were also better than expected and some of the
Trump’s executive decisions may be also acting as a “stimulus”; like his
meeting with the US automakers, forcing them to manufacture in America, swift
approval of the earlier stalled oil pipelines for environmental issues
(Keystone & Dakota) in exchange for US made steel pipes and another
imminent action to build a huge Mexican wall. All these may be acting as “backdoor”
infra/fiscal stimulus and Dow is also eyeing the magical 20k marks as if Trump
signs another “executive order” to make it happen (on a lighter note!!).
Apart
from the budget optimism and better than expected Q3 earnings (except some
terrible results), specially from the financials, market sentiment is also
boosted by better prospect of BJP in the forthcoming state elections, especially
in the UP amid fragmented oppositions and internal feud in the Yadav family.
Also some fall in the USD/US bond yields has helped the Indian market to some
extent, after Trump took charge of the Oval office.
Indian
market is also getting some support as it’s almost certain now that RBI will
cut by 0.25% in its Feb policy day. Also, Trump’s telephone call to NAMO on a
priority basis yesterday and his invitation for Modi to visit US later this
year may be seen as a sign of friendly relationship between the world’s two
largest democracy and ease tension about possible trade war (although it may be
simply a domestic politics compulsion for Trump and the effort of his
Indo-American teams).
Although,
market is expecting a “dream/popular” budget from the Govt this time, after
demonetization fiasco, any “populist Robin Hood” types of budget overriding the
fiscal discipline of the Govt may also jeopardize the “feel good” factor of the
investors. Also, any capital market taxation issues like redefinition of the
LTCGT from one to three year and FPIS taxation controversies may cause significant
knee jerk reaction in the market.
Going
forward, Trump’s “America First” policy may also cause significant headwinds
for various economies (both EM & DM), including India. As Trump will
gradually reveal his specific plans for the infra/fiscal spending, USD may gain
more strength in the coming days and the “Trump Trade” (dump the EM & buy
the DM) may also return.
As
there were various loopholes available in Nov-Dec’16 after announcement of the
demonetization, Q3FY17 earnings may not be a true reflection of the economic
slowdown as also Oct’16 was normal before “surgical strike on the black money”
amid festival season related demands. Looking ahead, Q4FY17 & Q1FY18 may be
ideal season to gauze the real impact of the demonetization narratives.
Pain
of demonetization is certainly transitory and it will recede along with gradual
remonetization (a new 1000/- note may also be announced tomorrow or after state
elections in March & 2000/- note may also be withdrawn with maximum 50k
exchange limit this time).
But,
the “war on black money” may be a long term effect on the Indian consumption
story & on the economy because at least 30% of domestic consumption may be
suffered; destruction of “wealth” and redistribution of the same may take
significant time.
As
par Fitch, Indian real estate market may report 20-30% slower growth in Q4FY17
and subsequent H1FY18 as a result of demonetization & “war on unaccounted
money”. Although, Govt may provide some stimulus in the forthcoming budget by redefining
the ‘affordable housing” concept (2 BHK may fall under it), it will be still
challenging for the housing market going ahead.
Apart
from the taxation & stimulus issues, market may also watch any specific
Govt plan for job creation in the budget as it may be the most vital factor for
NAMO Govt in the 2019 general election and also for the great story of Indian
consumption. NAMO has to counter with “Made In America” & “Hire Americans”
theme by Trump for his “Made In India” aspiration and for that Govt has to
promote more the “Skill India” theme.
SGX-NF
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