*Market Wrap: 28/12/2016 (17:30)*
*Technically Nifty Fut (Dec @8034) has to sustain over 8085-8120 area
for further rally towards 8160-8200 for tomorrow.*
*On the other side, sustaining below 8040-8000 zone, NF may further fall
towards 7940-7890 by tomorrow (FNO Exp day).*
Nifty Fut (Dec) today closed around 8034, almost flat (+0.03%), but well
off the day high of 8100 in a late day probable “basket selling” by some
institutions (almost 13 lakh NF sell around 14:09), most probably to
realign their portfolio ahead of FNO Exp tomorrow and start of new CY.
NF made a session low of around 8024 today in a matter of minutes after
gyrating around the vital resistance zone of 8085-8120 for some time and
unable to break the level of 8120.
Although, apparently there may not be any specific reason for such
sudden late hours “basket selling”, we have to keep in mind that the
yesterday’s bounce back in the market was itself a “short covering
rally” on the basis of some tax reform talks by the Govt, which was
already a known factor for the market also.
Looking ahead, market may look into actual announcements by the
Govt/NAMO regarding further demonetization/remonetization steps after
31^st Dec’16, any announcement of “stimulus” on 2^nd Jan’17 at NAMO’s
scheduled public meeting and other “selective leaks” about tax reforms
in the forthcoming budget.
Indian market will also watch monthly auto sales, Mfg PMI and other high
frequency economic data for Dec’16 to gauze the actual damage suffered
by the economy and lower trajectory of Q3FY16 earnings & GDP as a direct
impact of the unprecedented “reform” of demonetization.
Indian Govt today appointed Viral Acharya, a NY based professor in
economics as one of the Dy RBI Gov, who has expertise in NPA management
and has also some flamboyancy and thoughts similar to Rajan. As par some
analysts, Viral “knows the moral hazard of Govt guarantee in banks/PSBS
and he may push for running PSBS in an efficient way”.
May be, market is concerned about another “deep surgery” like Rajan for
the hidden stressed assets and thrust for actual resolution for the
banks/PSBS rather than consistent “window dressing” of debt
restructuring in different forms. Banks, specially PSBS was in good
pressure today in the late day trading.
After sudden demonetization, SMES may be the worst affected much more
than the big corporates, because the later are already digital. As a
result of consistent cash crunch & cash flow mismatch, loan portfolio of
the SMES may be in great stress; even personal loan delinquencies may
rise after demonetization led economic disruptions.
Thus banks may be the biggest loser in this epic experiment of
demonetization as they are unable to earn any significant on the huge
demonetization deposits and more over, they have to pay the minimum 4%
pa for such savings deposit and there is no fresh incremental demands of
loans also.
Moreover, operating costs of the banks may have increased significantly
for the demonetization led cash & compliance management. Thus, NIM &
earnings of the banks may be in “deep water” for Q3 as well as Q4FY16.
Only “windfall gain” for the banks may be sudden spurt in loan/NPA
repayments after demonetization in old notes for around Rs.66000 cr.
But, this may also be treated as “black/unaccounted money” by the IT/ED
later, where repayment was more than Rs.2.5 lakhs in old notes (cash)
and there may also be some types of litigation.
Today Govt also notified an ordinance to give legality for the
demonetization and limitations to further hold the old currency notes.
This may be the last effort by the Govt, desperate for an “windfall
gain” out of demonetization for a “special dividend” from the RBI to
give “immediate stimulus” to the “Aam Admi” (JDY accounts having
zero/nominal balance) by way of “farm loan waivers” or even by “direct
deposits” (desi version of helicopter money).
Although, Gov (Patel) has clearly denied such possibility in the last
RBI meet of an “windfall gain” out of “cosmetic treatment” of its
balance sheet without any actual P/L effect, it’s interesting to see,
what RBI can do this time to protect the independence & credibility of
the institution by saying “no” on the face of the Govt. As former RBI
Gov, Rajan emphasized in his farewell note, that RBI as an institution
must have the ability to say “no” for any illogical demands, even from
the Govt, investors may be now missing the “vocal” Rajan and feeling the
actual pain of “Rexit”. A healthy central bank is essential for for a
country's banking system and any attempt by the Govt to directly
recapitalize the ailing PSBS from the coffers of the RBI may not be
taken well by the investors (FPIS); bond market & INR may react
adversely and EQ market may also follow that.
<https://3.bp.blogspot.com/-ewi8uU1yNng/WGPGshxbxYI/AAAAAAAAJ_E/PTHJyS1PsokcFsoR1oqzRRoH-9PlymFMgCLcB/s1600/NF-28-12-2016.png>
NF
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Thanks & Regards,
Asis Ghosh
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