Nifty May Slip On Fiscal & LTCG Worries Despite Holiday Thinned Mixed Global Cues & Lower USD

Market Mantra: 28/12/2017 (09:00)

SGX-NF: 10505 (+13)

For the Day: updated: 14:00

For 28/12/2017: Dec-Fut/Spot

Key support for NF: 10490/10455-10400/10340

Key resistance for NF: 10555/10575-10610/10650

Key support for BNF: 25400-25200/24950

Key resistance for BNF: 25600/25775-25875/26050

Trading Idea (Positional):

Technically, Nifty Fut-Dec (NF)/NS has to sustain over 10575 area for further rally towards 10610/10650-10695 & 10745-10795 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10555 area, NF may fall towards 10490/10455-10400/10340 & 10270-10180 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25775 area for further rally towards 25875- 26050 & 26200-26325 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25725-25600 area, BNF may fall towards 25400-25200/24950 & 24800-24575 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Dec/India-50) is now trading around 10505, almost flat (+0.06%) amid year end holiday thinned mixed Global/Asian cues and fiscal worries after Govt formally declared about additional FY-18 borrowing for Rs.0.50 tln.

Indian 10YGESC bond yields today surged to almost 7.39% on probable higher FY-18 fiscal deficit of around 3.50% (estimates varies from 3.35-3.70%); it’s now trading around 7.364%; USDINR-I is edged down (-0.03%) to around 64.31.

Apart from bond market, overall market reaction is quite limited on account of year end portfolio window dressing despite concern of higher fiscal deficits and a probable negative rating action, if such trend persists in late 2018.

Apart from dilemma of fiscal slippages & fiscal stimulus, populist budget, higher Oil & higher inflation, market may be also concerned about renewed debate of long term capital gain tax (LTCG) definition in the forth coming FY-19 budget.

LTCG was deferred last year after DeMo led market disruption. But Govt may go ahead this year as market is hovering around life time high with no major risks of disruption/outflow and Govt revenue is also stretched.

Govt may change the definition of LTCG from present one year holding to three years or scrap the distinction between STCG & LTCG (both @15%) as a “meaningful tax contribution by the capital market towards growth of the country”. By increasing LTCG period, Govt may also encourage long term investments rather than short term trading/derivatives.

Meanwhile Metal & mining stocks are surging on upbeat commodity prices, while AGAG group shares are buzzing on R-COM debt plan optimism and reports of unpledged of shares from the lenders.

Overall, higher bond yields may continue haunt the Indian market as 10YGSEC yield is seen around 7.50% in the days ahead; bond market correctly anticipates higher fiscal deficit despite Moody’s rating upgrade optimism. 

SGX-NF