Nifty May Open Almost Flat Tracking Mixed Global Cues On The RBI Day; Will Mint Street Surprise The Dalal Street By Giving An Independence Day Gift To The Nation By Cutting 0.50% Today?

Market Mantra: 02/08/2017 (09:00)

SGX-NF: 10140 (-7)

For the Day:

Key support for NF: 10100/10080-10000

Key resistance for NF: 10155-10205/10275

Key support for BNF: 25150-25050

Key resistance for BNF: 25275-25485

Hints for positional trading: Strategy-SELL ON RISE

Hints for positional trading:

Time & Price action suggests that, NF has to sustain over 10205 area for further rally towards 10275-10325 & 10380-10455 in the short term (under bullish case scenario).

On the flip side, sustaining below 10185-10155 area, NF may fall towards 10100/10080-10000/9935 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25275 area for further rally towards 25485 -25695 & 25865-26030 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25225 area, BNF may fall towards 25150-25050 & 24800-24640 area in the near term (under bear case scenario).

As par early SGX indication, Nifty-Fut (Aug) may start the RBI day around 10140, almost flat tracking mixed global cues; overnight EU & US markets were closed in positive on stable earnings and some fall in EUR/EUR bund yields; although EURUSD is still hovering over 1.18 mark.

DJ-30 also closed in positive eyeing the 22k level around 21964 (+0.33%) supported by banks & financials and also upbeat report cards/guidance from Apple; but terrible US auto sales figure, especially from the big three and ongoing political drama may have also affecting the overall market sentiment.

Yesterday USD got some strength from multi months low on short covering ahead of the US NFP on Friday and there was also some report that Muller may be removed from the Senate investigation team probing Trump’s Russian link allegations on charges that he may have some conflict of interest with the EX-FBI director.

US health care bill is another hot political issue now as it’s involved with the ordinary American citizens and now it seems that unless & until it got resolved, Trump administration may not be able to focus on the core part of their Trumponomics narratives (tax reform & fiscal/infra spending) to stimulate the US economy.

Back to home, all eyes of the Dalal Street will be on the Mint Street (RBI) today; going by the price & time, it seems that a rate cut of 0.25% is almost discounted by the market. Now the big question is RBI/MPC stance (hawkish/dovish/owlish-neutral) & its statement; will it be dovish cut paving the way for more cuts in the coming quarters or a hawkish cut (one off & final in 2017).

RBI today may cut repo by 0.25% and may also cut reverse repo by 0.50%, thus helping the banks for a better spread (NIM) as credit demand is still poor and is also not expected to pick up soon as the system is still over burdened with stressed assets.

There may be three scenarios today for RBI action:

·         0.25% cut with hawkish stance: expect selling in the market towards 10000-9935 area

·         0.25% cut with dovish stance: expect moderate rally in the market towards 10275-10325

·         0.50% cut to give an unexpected gift to the nation on the eve of the independence day (no further rate cuts in 2017, unless inflation & GDP puzzle clears): expect a strong rally towards 10500

Going by all the narratives, an economy which is claiming to be growing at above 7% on an average can’t have an headline CPI below 2% and can’t expect multiple rate cuts or monetary stimulus from the central bank; thus there is an urgent need to remove the underlying anomaly between GDP, inflation data in India; either GDP of inflation calculation methodology or both have some deficiencies.

Basically, in comparison to other developed economics, India has very limited set of macro data, which is perhaps making the job of the policymakers/RBI even tough; India now need a variety of economic data to gauze the underlying strength or weakness of the economy and UID/GST/PAN online synchronization may pave the way for more robust & reliable sets of macro statistics/economic data.

Today, if RBI cut, then it may be an exception within the G-20 world of economies, where all the major central banks are now either neutral or on the QT path (hiking); for RBI also, it may be a question of credibility, especially among the FPIS (bond market) as it recently adopted this neutral stance from being accommodative.

Technically, whatever be the RBI action today, Nifty Fut-Aug has to close consecutively above 10205 area; otherwise expect some corrections as another instance of “buy on rumour & sell on news”.

 SGX-NF