Nifty Dropped By 65 Points Amid Concern Of Outflows After Yellen Sounds Unusually Hawkish Coupled With Tepid Macros & Q3 Earnings By Tata Motors & Sun Pharma And Delay In PSBS Recapitalization Buzz

Market Wrap: 15/02/2017 (19:00)

Looking at the chart, Nifty Fut (Feb @8750) has to sustain over 8800 area for further rally towards 8855/8875-8925 & 8995-9075 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8775 zone, NF may fall towards 8715-8690/8665 & 8605/8585-8551/8490 area in the near term (under bear case scenario).

Similarly, BNF (LTP: 20216) has to sustain over 20450-20550 area for further rally towards 20650-20750 & 20950-21350 area in the near term (under bullish case scenario).

On the other side, sustaining below 20400-20300 zone, BNF may fall towards 20150-19950 & 19800-19550 area in the near term (under bear case scenario).

Nifty Fut (Feb) today closed around 8750 (-0.74%) after making an opening session high of 8827 and day low of 8727. Indian market today opened in positive tone following upbeat global cues after Yellen sounded unusually hawkish yesterday in her congressional testimony. Subsequently, USD/US bond yields jumped and the “Trumpflation Trade” again resumed. 

But this “reflation trade” may be good for DM and not for EM as combination of stronger USD & fiscal stimulus in US (Trumponomics) may spur capital outflow from EM to DM for better secured return. India being a part & parcel of the same EM community may not be an exception despite relatively stronger macro, stable INR and various green shoots in the economy. Thus, soon after opening in positive tone following global cues, domestic market came under some selling pressure, which further accelerated on the back of shocking Q3FY17 results & guidance from some of the index pivotals (like Tata Motors, Sun Pharma).

Barring Japan, nearly all major Asian markets including China & India were under stress today as the old “Trump Tantrum” again haunted the market. From overall comments of Yellen, it seems that although Fed may not hike in March’17, there may be two hikes in June & Dec’17 this year albeit with many caveats. Japan rallied on the back of depreciated Yen (strong USDJPY) as Japan is an export oriented economy.

Going by the dual mandate of Fed and pure text book economics, Yellen may go for multiple hikes in 2017, but in reality, after all she has to look forward to his present political boss (Trump) as eventually, Fed may be more guided by US politics & Trump’s twitter handle rather than trajectory of US economics. There are lots of uncertainties about “Trumponomics” and Trump’s pledge of US tax reforms (cuts) amid various political risks and allegation of Russian link with Trump & Co (!!).

Trump is also now not in favour of a stronger USD for US trade deficits and export competitiveness contrary to his earlier election rhetoric of an artificially low US interest rate for the benefit of Wall Street and it will be interesting to see his tweets in this regard after a hawkish Yellen. Eventually, Yellen may not get an extension after 2018 and we may see a brand new FOMC (yes man of Trump) and Fed’s institutional & regulatory independence may be also at stake in the coming days. 

For India, although INR is quite stable and outperforming its EM peers, thanks to stable macro and a hawkish RBI, eventually a combination of stronger USD, Trumponomics may be fatal for capital outflow. It may be a interesting duet between Modinomics & Trumponomics in the months ahead. Fortunately, Indian retail inflows via MF (SIP) and also direct participations are now significantly higher than earlier and thus DII(s) are able to defend the outflows by the FII(s) so far. 

Indian market sentiment today further dragged after an unconfirmed reports flashed that Govt may delay PSBS recapitalization funding further to FY-18 on the back of tepid credit demand and some poor performance parameters by some of the PSU banks. As on Q3FY17, almost 12% of the advances by PSBS may be stressed and various reports are indicating that more than 15% of the PSBS loan portfolio may be under NPL; irrespective of any recognition & accounting narratives, these legacy NPA issues now need faster resolution. But going by various guidance from the PSBS management, actual resolution may be still “few quarters” away, especially after demonetization blues.  

Meanwhile, there are also reports that El-Nino may again occur this year and if that is the case, then expect some bearish news flow from the monsoon front this time.

As par the Govt, there is now no “obstruction” for implementation of GST from July’17 and all eyes will be on 18^th Feb for the GST meeting in Rajasthan this time (?). But, even then, there may be considerable political “war of words” for the next Parliament session scheduled for early March, especially after demonetization led “rain coat bathroom” jibe by NAMO for MMS. Also, there are lots of uncertainties and lack of preparations by the SMES after the demonetization led economic disruptions. 

Thus, any roll out of GST in a hurried way by July’17 for “constitutional compulsion” may be proved as another disruption and Indian economy may not be ready to withstand such successive disruptions (demonetization & GST) in a short span of time and GST may be now viewed as negative by the market with so much regulations & complexities. A faulty GST, which is not so much different than the present form of VAT & ED and may not help significantly either towards the GDP or corporate earnings.

SGX-NF

 BNF