Nifty Closed Almost Flat In Another Day Of Consolidation; But Finished The “Budget Week” More Than 1% Up Supported By A “No Shocker, Yet Fiscally Prudent” FY-18 Budget And Weak USD & Mixed Q3 Results And PMI Data; What’s Next For The RBI Week ?

Market Wrap: 03/02/2017 (19:00)

Looking at the chart, Nifty Fut (Feb @8758) has to sustain over 8800 area for further rally towards 8855-8895 & 8950-8995 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8775 zone, NF may fall towards 8725-8655 & 8600-8540 area in the near term (under bear case scenario).

Nifty Fut (Feb) today closed around 8758 (+14 points) after making a session low of 8725.55 and day high of 8763.90. Indian market today opened almost flat amid tepid global cues on the back of ongoing “Trumpmania”. Clearly, priorities of Wall Street and Trump administration is on a divergent path contrary to earlier narratives of “Trumponomics” and global market may be tired of “Trumpfatigue”. 

Elsewhere, China was under pressure today after a long Lunar New Year holiday as Caixin MFG PMI came below market estimate and PBOC also tightened the money market (OMO) by raising its interest by 0.10%. BOJ also intervened by offering to buy unlimited JGY bond in the short end in order to keep the Japanese bond yield under control around 0.00% (YCC). As a result, USD is getting some strength ahead of US NFP data today. 

A better than expected headline NFP & hourly wage may be positive for USD as probability of Fed rate hike will increase for March (?) & June’17. But, rather than economics, US politics & Trump twitter handle (jawboning) may decide the fate of USD in the days ahead as eventually, Trump may have realized that too much strong USD is not good for the overall US economy & also for his perception of “Trumponomics”.

A weak USD may be good for EM and also for the Indian economy & market. Although, Trump is basically accusing all the other nations from China to Germany for currency devaluations & huge trade deficit for US, it’s may be one of the source of “easy funding” for the US economy also. Overall borrowing cost of US economy is traditionally lower because of huge US TSY holdings by its trade partners at comparatively lower yields and safety. Thus a stable USD may be required for the interest of its own and also for the global economy and Trump’s rhetoric of trade protection; border tax & “America First” policy may leave USA “alone” in this age of globalization.

Back to home, prior to the FY-18 budget, Indian market was very concerned about any “capital market tax reform” as indicated by NAMO for “contribution towards the development of the economy”. But in reality, nothing has happened, may be because at this point of time, Govt is also not keen to disrupt the market after demonetization fiasco. Going by various disinvestment plans for FY-18, Govt may also need a stable capital market for its own interest, as the 3.2% proposed fiscal deficit for FY-18 might be at risk, if various revenue projections, specially the disinvestment target failed miserably. Also, FY-18 revenue collections may be greatly dependent on the incremental growth (around 20%) of both direct & indirect tax collections. There may be considerable uncertainties for such incremental growth in the backdrop of demonetization blues, IDS & actual implementation of GST (?) from middle of the year. Going by various reports, implementation of GST from Sep’17 may be another economic disruption as industry is not ready, especially SMES after the recent demonetization chaos.

Although, FY-18 budget may be termed as “fiscally prudent”, its actual implementation & projected revenue collections and actual GDP figure for FY-17 & trend for FY1-8 GDP may be vital.

Today, Indian market sentiment came under slight pressure after tepid but improved service & composite PMI (still below 50). But, comments from Markit that it may gradually improve from here may have supported the sentiment later.

 SGX-NF