Market
Wrap: 02/03/2017 (19:00)
Bond Market May Be Discounting No Rate Cut In FY-18 Amid “Excellent” GDP Coupled With A Hawkish RBI, Which May Also Talk About Rate Hikes In The Coming Months
Time & Price action suggests that,
Nifty Fut (March @8912) has to sustain over 8995 area for further rally towards
9035-9075* & 9125-9195 in the short term (under bullish case scenario).
On the other side, sustaining below 8975
zone, NF may fall towards 8935-8875* & 8840-8790 area in the near term
(under bear case scenario).
Similarly, BNF (LTP: 20623) has to
sustain over 20950 area for further rally towards 21050-21150* &
21350-21500 area in the near term (under bullish case scenario).
On the other side, sustaining below
20900 area, BNF may fall towards 20750-20500 & 20400*-20250 zone in the
near term (under bear case scenario).
Nifty
Fut (March) today closed around 8912 (-64 points), down by 0.71% after a
dramatic fall from the opening session day high of 9018 to a closing session
low of 8898. Indian market today opened in a positive tone following another overnight
rally & another record high of US market, which is a “new normal”
now-a-days, especially after “Trumpism”. But after breaching the big hurdle
zone of 9000, NF could not sustain the fresh 6 months high as suddenly a
selling wave creeps in.
Technically,
it may be a combination of long unwinding (profit booking) & fresh shorting
by smart money as market has rallied quite relentlessly by more than 1100
points (+14%) in the last few months after DeMo led Dec’16 low and also
extremely overbought; but market might also noted that after sudden change of
RBI stance from being always accommodative to neutral in Feb’17 and subsequent
upper trajectory of core inflation and upbeat Q3FY17 GDP number (7%) despite
DeMo blues, Indian G-SEC bond yields are finally moving down quite sharply.
Fall
of 10Y G-SEC bond yield may also indicate that the bond market is not expecting
a RBI rate cut in the near term (FY-18) as Indian GDP is “galloping” quite
smartly despite all the DeMo concerns. Certainly, an economy, which is
projected to grow around 7.5-8% year on year, does not need further incremental
rate cuts, where core inflation trajectory is still higher at around 5%. Thus,
a combination of hawkish RBI, hawkish Fed and “brighter” outlook of Indian
economy may have made the bond market to convince that RBI will not cut further
in FY-18. As bond yield & EQ market move conversely, investors may be
booking some profits at around record high of index level and smart money may
also be flowing from expensive risky EQ to the safety of bonds (G-SEC).
A
falling bond yield; i.e. higher bond prices may be good for Bank’s bond trading
portfolio as almost 20.5% of net NDTL (deposits) has to be parked in G-SECS to
maintain required SLR, but it may be overall bad for EQ markets. An incremental
G-SEC inflow may be also good for the Govt to fund its fiscal deficit
borrowings.
Although,
incremental flow by FPIS into the bond as well as the EQ market may be
supporting the INR at this stage despite an unusual hawkish Fed and a looming
threat of a March rate hike, USDINR may also get strength in the coming days on
the back of attraction of better real bond yields in US coupled with a stronger
USD/hawkish Fed and attraction of Trumponomics (if implemented as par plan!!).
Incidentally, Govt has already breached the fiscal deficit target in Jan’17
(105.7%); although that may be covered in Feb-March’17 on the back of increased
tax revenues, Govt may also not be in a position for any incremental capex
during this period due increasing fiscal strain.
Apart
from bond market issue, Indian market may be also cautious about actual outcome
of state poll results next week; although as par bookies, BJP/NDA may win in
all the poll bound states including UP quite convincingly; but Punjab may be an
exception. It also appeared that a large part of BJP’s likely win may have
discounted by the market and in the event of actual win by BJP, market may
rally by another 100-200 points to reach near the all time high in Nifty around
9120 from he present level of around 8900; i.e. around 3-5% rally; but on the
event of any unexpected bad result of BJP, Nifty may also correct quite
significantly by around 8-10% as market will be then concerned about pace of
reforms and fate of NAMO in 2019 general election as a fallout of DeMo and
other issues like employment.
Market
may be also concerned about fate of GST bill passage in the forthcoming
Parliament session amid various political issues and controversies. Also,
states and moreover administration & business circles are quite concerned
about a hurried roll out of GST from July’17 with so much regulations & complexities.
Such faulty designed GST may do more harm than any benefit and may bring
another wave of economic disruption after DeMo.
As
par reports, Govt may be planning to charge banking cash transactions after
certain limit and may also define limit of maximum cash transactions at Rs.3
lakh with overall cash in hand limit at Rs.15 lakhs (??) in its ongoing “war
against black money”. GST may be another such weapon, designed to eliminate
informal economy and forced them to be formal & pay tax (??); Govt may also
empower the tax officials to cross check or question the unregistered (GST)
small business. Thus, GST may be another form of harassment for the small
business, which can’t be afford to be formal as compliance cost will make their
business model unviable. Also, Govt/BJP may be concerned of any immediate
adverse effect of GST on the inflation & its poll prospect itself.
Considering
all these, BJP/Govt may also not want to take further political risks after
DeMo and thus may create an atmosphere of Political controversy, so that
opposition will bound to disrupt the Parliament and ultimately the GST bill
will not be passed in the forthcoming Parliament session and will be not
implemented in 2017 too; in that scenario, after further discussions with the
stakeholders, GST may be implemented only after 2019 general election with
revised design and less regulation & complexities and no one can also blame
the Govt/BJP for further delay in GST; all blames will be on the opposition
(INC/UPA).
Although,
a hurried implementation of a faulty designed GST may not be good for Indian
economy and also for the market, investors can react quite negatively if GST is
further delayed to 2018 or 2019 and rating agencies may not be also very amused
for this GST politics.
Globally,
all the market was stable/slight positive today except China, which fall some
extent. There was a report of production cot for low quality steels & other
metals due to growing environmental concerns. Also, today’s tepid AUD trade
balance data indicates sluggish mineral exports from Australia to China and
this there may be renewed concern about health of Chinese economy. All eyes
will be on the annual meeting of Chinese Communist Party this weekend, where
they can set a GDP growth target for the Govt.
As
almost all the near term probable triggers (rhetoric) by Trump has been
completed, US bond yield may also reverse the present upwards course and we may
see incremental flow from expensive & risky EQ to the safety of USTSY bonds
in the coming days and US as well as global market may also correct. India,
being a part & parcel of the same global community, may also correct proportionately
despite some visible “green shoots”. An investor may also wait patiently for
some dips to accumulate again good quality stocks and take this volatility as
an opportunity.
SGX-NF
BNF
No comments:
Post a Comment