Nifty Set To Close In Deep Green After Govt Vows To Cut Down Additional Debt For Sake Of Fiscal Prudence

Market Mantra: 17/01/2018 (09:00)

SGX-NF: 10705 (-18)

For the Day: updated: 14:55

For 17/01/2018: Jan-Fut

Key support for NF: 10690/10635-10575/10500

Key resistance for NF: 10755/10785-10805/10860

Key support for BNF: 25775/25575-25400/25200

Key resistance for BNF: 26200/26250-26325/26415

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10805 area for further rally towards 10860-10905 & 10955-11095 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10785-10755 area, NF may fall towards 10690-10655/35 & 10575-10500 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 26250 area for further rally towards 26325-26415 & 26580-26615 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 26200-26150/050 area, BNF may fall towards 25775-25575 & 25400-25200 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Jan/India-50) is now trading around 10750, jumped by almost 0.40% and well off the panic low of 10665 made in the opening minutes after surge in bond yields yesterday on concern of fiscal slippages. But today Nifty jumped from the panic low after Govt said that it will borrow only RS.0.20 tln extra in FY-18 vs earlier estimate of Rs.0.50 tln.

Govt has already declined to take borrowing of Rs.0.15 tln few weeks ago by cancelling three bond auctions on price volatility (plunge in bond prices on concern of higher supplies) and thus Govt will adjust the remaining Rs.0.15 tln in the next few weeks from the notified borrowing programme.

Govt has said that “after a review of trends in revenue receipts & expenditure pattern, it has been assessed that additional borrowing of only Rs.0.20 tln through GSECS would be adequate to meet financial needs in FY-18”.

As par Govt sources, collection from direct taxes & disinvestment programme would be much higher than estimated despite some shortfall in GST collections and thus Govt can cut additional borrowing.

After the Govt announcement, Indian 10YGSEC yields tumbled from earlier high of 7.56% to 7.38% and Nifty-Fut also jumped from 10665 to 10764 till now as relief rally; 10YGSEC yield is now around 7.426% (-1.77%); USDINR-I also retraced from earlier high of 64.26 to 63.85 and now trading around 64.03 (-0.18%).

RBI is also extending a helping hand to the Govt in this “difficult time” by transferring an additional dividend of Rs.0.14 tln, thus totaling Rs.0.45 tln for FY-18 vs 0.65 in FY-17 (DeMo effect).

Thus reduced additional borrowing from Govt, support of additional RBI dividend (already known to the market) and some drops in WTI/Oil (facing technical resistance at $65 level) is now boosting the market. But market may be in dilemma also between fiscal prudence & fiscal stimulus as the later is also urgently required to dig out the economy from its deepest slumps in last three years.

Govt is clearly panicking after seeing yesterday’s adverse market reaction (surge in bond yields) and thus resorting to jawboning & saved the market today from further plunge as a strong equity market is also important for the Govt for its disinvestment programme, everything being equal.

Apart from Indian macros, all eyes may be now on Q3 earnings, which are so far mixed. Fall in bond yields has boosted the banks & financials, especially PSBS and subsequently Sensex scaled the 35k milestone in line with ongoing global euphoria; Nifty & Bank Nifty also scaled record high.

SGX-NF

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