Market
Wrap: 24/01/2017 (19:00)
Looking at the chart, Nifty Fut (Jan @8487)
has to sustain over 8495-8515 area for further rally towards 8545-8585 zone in
the short term (under bullish case scenario).
On the other side, sustaining below
8475-8455 zone, NF may fall towards 8410-8325 area in the near term (under bear
case scenario).
Although present rally in the domestic
market may be driven by some upbeat Q3 earnings despite demonetization blues,
Q4 may be a true reflection to gauze of the short term impact on the economy.
Market sentiment is also upbeat for
hopes of a “dream budget” this time to reduce the demonetization pains ahead of
state elections and in preparation for 2019 general election; but strict
adherence of fiscal deficit target & capital market taxation issues may
also spoil the “feel good” party.
Nifty
Fut (Jan) today closed around 8487 (+85 points), almost at the day high (8488),
after making an opening session low of 8416.
Indian
market today opened almost flat following mixed global cues and some early fall
in USD amid continuous trade protection rhetoric of Trump without many details
about his fiscal spending plan and comments by his TSY Sec about adverse effect
of a stronger USD on the US economy. But soon after opening, domestic market
rallied quite smartly amid upbeat & stable Q3 earnings from HDFC Bank &
HCL Tech and hopes for a market friendly budget from the FM this time. The
market sentiment got further boost in the closing minutes after UK SC gave its
nod in favour of a Parliament approval for invocation of Article-50 to initiate
the official procedure for “divorce” from the EU.
Although,
apparently it seems that as the UK SC verdict has gone against the British Govt
and thus eventually, Brexit may or may not happen at all (subjected to
Parliament approval), on closer look this verdict actually paves the way for a “Real
Brexit” in a time bound manner.
The
ruling Conservative party (May) has absolute majority in the British Parliament
with 100 MP majority positions. Thus, Parliament approval may not be a real
problem for the UK Gov and as par the latest report, the necessary legislation
bill will be introduced within next few days and by March’17, all the
formalities regarding invocation of Article-50 will end. UK Govt is hoping that
no one will obstruct the “will of the people” (Brexit referendum) and Brexit is
now irreversible & a mere formality (by 2019).
But the most significant part of the UK SC’s
verdict today was that in the process of devolution, UK Govt need not to
consult Northern Ireland, Scotland & Wales, who are against the Brexit.
Thus, the verdict essentially paves the way for an official exit for UK from
EU. But at the same time, exit from EU against the will of the above provincials
may also cause further disintegration of UK in future.
Another
point is that after Brexit referendum and subsequent devaluation of GBPUSD by
around 20% (from 1.50 to 1.20), UK economy has benefited immensely and
basically, it enjoyed both sides of the coin, being in the advantage of EU/EZ
trading zone & a devalued currency. Going forward, UK economy is expected
to enjoy this dual advantage till at least 2019, unless & until EU
authorities (Germany/France) has put some new rules to debar it. Incidentally,
Germany may be the biggest loser on the export front after huge devaluation of
the GBP and it may not allow UK to enjoy both sides of the coin for another 2-3
years.
Another
point is that market is not showing any “panic” till now after this UK SC
verdict, because EU is itself may be in the way for disintegration after this
Brexit amid rise of nationalistic politics in various parts of the EU, especially
in Germany, France, Netherlands & Italy. Thus, advocation of various bilateral
trade negotiations by UK may be good for its economy rather than being part
& parcel of a disintegrated EU/EZ.
General
elections are due in 2017 for various countries as mentioned above which are
the backbone of EU/EZ single/common currency market concept. As of now, the
populist nationalistic political parties & leaders are enjoying massive
support, especially after Brexit & ‘Trumpism” (Trump is another
nationalistic leader/”America First”). Thus, the rise of such populist
political parties & leaders, advocating for trade barriers,
anti-immigration, anti-globalization may itself threaten the basic concept of
EU and disintegration of EU may be one of the biggest headwinds for global
market & geo-politics.
But
still, UK economy may face significant uncertainty and slowdown in the days ahead
after official invocation of Artcle-50 and this may be a quite challenging time
not only for UK, but also for the EU and the global economy, especially after “Trumpism”.
Technically, GBPUSD, which is now
trading around 1.25, has to sustain over it for a rally towards 1.35-1.40 zone
in the near term.
On the other side, consecutive closing
below 1.18, GBPUSD may further fall towards 1.10 in the days ahead.
GBPUSD
matrix has significant impact for the Indian market also, as various corporates
are well linked with it (Tata Motors, Tata Steel, TCS, Tech-M etc). A weak GBP
after Brexit has also helped sales of Tata Motors (UK) significantly.
Domestic
market sentiment today was also boosted by hopes for a “dream budget” next week
as it may be a tax-payer friendly budget this time, which is expected to leave
more disposable income in the hands of the consumers, thus paving the way for
incremental consumption after demonetization pain.
But,
at the same time overall expected windfall gain of around Rs.1.20-1.50 lakh cr as
a result of demonetization may depend on various factors and reality may be
quite different. Also, Govt is preparing the FY-18 budget this time without
much perfect estimate of the FY-17 & 18 GDP after demonetization related
economic disruptions & uncertainty. Govt is not also sure about
implementation of GST and its effect on the indirect taxes in FY-18 and
July-Sep’17 roll out of GST is still uncertain.
In
such uncertain scenario, fiscal deficit estimation wrt the GDP may also be
quite uncertain. As par some report, although the Govt reported the FY-16
fiscal deficit last year as 3.8%, CAG reported later it as 4.2% as final GDP
figure came lower than estimated. The same thing may also happen in FY-17 &
18, where there is significant uncertainty about absolute GDP figure itself.
Thus, instead of stick to a specific fiscal deficit figure, Govt may project a
range like 3-3.5% fiscal deficit this time.
After
presentation of FY-17 budget last year, the market rallied quite significantly
(after initial blood bath) primarily for the reason of this fiscal prudence (adherence
of fiscal deficit projection by the Govt despite challenging times). Some other
reasons were incremental Govt capex; RBI rate cuts, revival of rural economy,
good monsoon, and hopes for GST and above all, coordinated central bank’s
monetary policy action after G-20 meet in China (following global market
turmoil after US Fed hike, China Yuan devaluation and capitulation in oil).
Thus,
fiscal prudence by the Govt in FY-17 & 18 budget may be vital despite
slowing economy after demonetization.
Also,
market will keenly watch any rejig of capital market taxation structure and
FPIS taxation issues. Any redefinition of LTCGT from present one to three years
may cause significant volatility.
NF
No comments:
Post a Comment