*Market Wrap: 06/01/2017 (17:30)*
*Looking at the chart, Nifty Fut (Jan @8268) has to sustain over 8335
area for further rally towards 8375-8425 & 8485-8545 zone in the short
term (under bullish case scenario).*
*On the other side, sustaining below 8295 zone, NF may further fall
towards 8210-8125 & 8040-7915 area in the near term (under bear case
scenario).*
Nifty Fut (Jan) today closed around 8268 (-0.24%) in a day of
consolidation after around none days of successive positive closing and
closed the 1^st week of 2017 almost 0.7% higher amid some weakness in
USD and Govt’s reassurances about higher tax revenue collection than
budgeted estimates for FY-17.
The domestic market was also under pressure after PMI data for Dec’16
showed severe economic contraction; but some upbeat auto sales figure
may have also helped the market. Banks were under pressure for rate cut
transmission thrusts from the Govt/NAMO; but affordable housing schemes
and lower interest rates have also helped the real estate & auto sector.
IT counters were under immense pressure this week after some fall in USD
as a result of “not so hawkish” FOMC minutes and reintroduction of a H1B
visa bill in the US congress aimed at Trump’s election rhetoric of “Jobs
for America” first. Although, there may be severe lack of required
skills in the US work force for the IT sector as of now, the bill
calling for higher minimum salary for an immigrant worker by almost 67%
(from $60k to $100k/pa) may put significant higher operating costs for
the Indian IT companies.
Apart from H1B visa issues, investors may also be worried about
technological obsolesce for the Indian IT companies (lack of adoption of
latest technologies like AI, automation, digital etc) and its future.
Market may be also worried about Q3FY16 earnings & Q4 guidance from
Infy, TCS next week and its lack of inorganic growth, especially in the
AI/Automation field, despite having huge cash balances. In brief, the
days of traditional “code writing” & software services types of business
model may be over and for incremental growth, Indian IT companies must
peruse beyond that in order to keep itself as relevant for the rapidly
changing need of the global/US requirements.
As state elections has been announced by EC from 4^th Feb to 8^th March,
it may clash with the scheduled budget presentation date of 1^st Feb.
Thus, opposition political parties are seeking postponement of the
budget presentation to a later day after election. There may be distinct
lack of co-ordination (?) between Govt & EC, whereby despite the budget
presentation date (1^st Feb) this year was well known, state elections
has been scheduled from 4^th Feb, which may invite violation of poll
conducts from the opposition parties. Thus, “dream budget” day may be
deferred this time and Govt may also not in a position to announce any
“stimulus” or “helicopter money” intended for the “Aam Admi” to reduce
the “demonetization pain”.
Govt today flashed the estimated GDP for FY-17 as 7.1% for FY-17 from
actual 7.6% last year (FY-16). This estimates has been done up to Oct’16
without considering the demonetization impact from Nov’16. As par
various reports, GDP may be affected by 0.50% per month, until adequate
remonetization and restoration of broken supply chain. Thus, eventually,
FY-17 GDP may be around 5-5.50% by FY-17 and consequently, there may be
NIL or negligible earnings growths for Nifty in FY-17 as a direct fall
out of demonetization.
Apart from immediate economic & political disruptions, demonetization
may also cause significant surge in un/under employment in the days
ahead. Also, trend of private investments is very poor after the
surprised demonetization, which was already in tepid condition for the
last few years.
As a direct or indirect fall out of demonetization, Indian consumption
may be taking a big slump and also implementation of GST may be in jeopardy.
Just now, the much awaited US NFP data flashed and although the headline
job numbers is well below the street estimates & came at 156k (against
178k estimates; prior 178k) and unemployment number came at 4.7% as
estimated; the hourly wage growth came good at +0.4% against estimate of
0.3% (prior: -0.1%) and participation rate also flashed slightly higher.
Market was looking for growth in hourly wage as it may be vital for the
much awaited wage inflation for the US economy and thus, today’s NFP
data may be USD positive; if there is adequate wage inflation, US
consumer may not hesitate to spend more and economy will grow to
withstand successive Fed rate hikes in 2017-18 apart from the perception
of “Trumponomics”.
Crude Oil is trading now around 55, thanks to favourable API inventory
data & confirmation of Saudi cut yesterday; if there will be across the
board cut by various OPEC & Non-OPEC producers in the coming days as par
letter & spirit of the recent agreement, oil can further rally towards
62-70 level.
*Technically, Oil has to sustain over 55-58 zone for further rally
towards 62-70.*
**
For India, a combination of stronger USDINR (70-72) & Oil (62-70) may be
fatal apart from the headwinds of demonetization related economic &
political disruptions.
In the event of a stronger USD, RBI may not be in a position to cut rate
in Feb despite favourable inflation/growth matrix just to keep the
USDINR bond & interest differential at reasonable level to prevent out
flows.
Despite positive inflows by the DII(s) & MF (domestic SIP), almost 25%
of the Indian market capitalization (equivalent to the RBI FX reserve)
is dependent on FPI(s). As such, advocation of any tax policy against
the interest of the FPI(s) in the forthcoming budget may be
counterproductive and may be proved as also another disruption for the
domestic market.
<https://4.bp.blogspot.com/-VbW8ZTorktY/WG-tfxr55EI/AAAAAAAAKEw/fz1RB12pL1YpACVtB_YT2xHxN2GdLAoowCLcB/s1600/SGX-NF-WK-06-01-2017.png>
SGX-NF
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Thanks & Regards,
Asis Ghosh
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