*Market Wrap: 22/12/2016 (17:30)*
*Technically Nifty Fut (Dec @8005) has to sustain over 8075-8165 area
for further rally towards 8210-8275 & 8315-8375 zone in the near term
for any “Santa/NAV Rally”.*
*On the other side, sustaining below 7980-7900 zone, NF may further fall
towards 7840-7790 & 7700-7645 area in the short term. *
*Looking at the chart, 8200 zone may be now a big technical challenge
for the NF and consecutive closing below that, it may fall towards
7525-7425 area by next few weeks, when volume (FII) return to the market.*
*Similarly, for BNF (LTP: 17946), consecutive closing below 18000 zone,
it may fall towards 16365-15300 area in the next few months and present
down trend may change only consistent closing above 18750-18850 zone.*
Nifty Fut (Dec) today closed around 8005 (-0.94%) after an opening
session high of 8067 and late day low of 7975 and thus fall by almost
272 points in the last seven trading sessions on the back of consistent
selling by FII(s), although in a relatively light volume.
Some of the FII selling may be related to profit booking and year end
repatriation, but bulk of the rest may also be structural shift from EM
to DM (US) amid strong USD, attraction of expected “Trumponomics” and
growing domestic concerns of economic & earning slowdown and political
disruptions due to demonetization, which may also derail the much
awaited vital reform like GST.
Moreover, apart from the short term (6 months) effect of demonetization
on the adverse effect on India’s cash economy, long term story of
consumption may also be severely affected for the Govt’s stance of “war
on black/unaccounted money”.
The destruction of “wealth” and rebuilding/redistribution of the same
may take considerable time and the consumption/investment cycle may only
start after 2019-20 and by then India’s political path may also be clear
either for a more developed country or towards a more chaotic democracy.
The present demonetization fiasco is clearly taking a shape of intense
political battle between two main national parties (BJP & Cong) for not
only the 2017 series of state elections, but eyeing for the 2019 general
election also.
The “war of words” and various election rhetoric between NAMO & RAGA is
now taking the centre stage at UP election battleground; but both of
them may be well aware that neither of them will eventually win in UP
and perhaps, it is SP or even BSP, which may win the majority there.
Despite that, all the current rhetoric and blame & counter blame game
may be aimed at preparation for the ground of 2019 general election
considering in mind that if the present demonetization saga ends in an
eventual failure and cause more hardships to the common people &
economic slowdown, NAMO will be in serious problem despite huge support
base among salaried middle class and RAGA & Co may be the last laugh.
Thus “political risk” for India in the coming years may be a real
possibility, which may not only derail various reforms plan of the Govt
including GST, but may also destabilize the whole economy & country and
this may be the one of the reasons, why FPI(s) are exiting Indian bonds
at record pace to the safely of US & other DM(s), despite being
described as a “sweet spot” in the global economy.
Indian market sentiment may be further affected today after some reports
of renewed concern about FPI(s) tax treatment for Vodafone like transfer
of shares transactions, which may be quite confusing and may even
attract double taxation, which may also spook the FPI(s) in the coming days.
Also, as par some reports, Jan-March’17 period may be the transition
period of Ind-Maurititus DTAA and in that scenario, we may have lots of
FPI (s) based selling in India.
Since 9^th Nov’16, India has not only the double whammy of “Trumpism” &
demonetization, but also a surprised hawkish Fed, which may hike thrice
in 2017, depending upon the actual trajectory of “Trumponomics”.
Although, there was visible FPI outflow even before outcome of US
election as “fiscal spending” was the main election rhetoric more or
less for both Trump & Clinton, the net outflow was accelerated after
1-st week of Nov as USD & US bond yields are getting stronger day by day.
As par some reports, total FPI(s) withdrawal from EM since “Trumpism” is
around $18 bln in bonds & EQ and out of that, around 50% ($8.8 bln) are
from India (EQ $2.85 bln & bond $5.95 bln).
So, far DII(s) are equivalent buyers of FII(s) selling, but going
forward, DII(s) may also go slow as retail participation sentiment &
consequent MF flow may be severely affected due to demonetization &
“surgical strike on black money”.
Also, as par some reports, Govt/NAMO may shortly (on 2^nd Jan’17)
announce some “big stimulus” in the form of direct taxes and some “Santa
Gift” to the “Aam Admi” in the form of farm loan waiver and even
transferring some demonetized funds to the zero balance PMJDY bank
accounts to reduce the “short term pain” due to demonetization led chaos.
But, eventually any “Rabin hood” like approach by the Govt/NAMO may be
counterproductive and may also invite various legal challenges apart
from the apprehension of populist measures by the Govt ahead of series
of state election, which may also be interpreted as “fiscally loose”.
India’s combined fiscal deficit math may also be in jeopardy as a result
of decreasing revenues and increasing “stimulus” (desi version of
“Helicopter Money”).
Incidentally, Bitcoin may be the biggest beneficiary of India’s “war
against unaccounted money” this month, appreciating by nearly 18% along
with China’s outflow pains and some global flow towards “safety”.
Looking ahead, domestic market will look into the GST meeting currently
going on till tomorrow; although there is virtually no hope for any
political & administrative consensus this time and also subsequent
April’17 roll out, Govt may finally announce that next date may be
Sep’17, considering it as “constitutional compulsion”. But, eventually,
“political compulsion” may take the GST implementation date after only
2019 general election and also Indian economy may not withstand two
successive disruptions both for demonetization & GST.
Indian market may not be yet discounted for a GST after 2019 general
election, depending upon the political outcome.
<https://2.bp.blogspot.com/-J1PXgqAAVfs/WFvg7cVqRQI/AAAAAAAAJ5k/1vGG9gsRfiQ4mIcpiLHKlHZxIlSvmb1owCLcB/s1600/SGX-NF-PATTERN-22-12-2016.png>
SGX-NF
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Thanks & Regards,
Asis Ghosh
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