*Market Wrap: 09/01/2017 (17:30)*
*Looking at the chart, Nifty Fut (Jan @8253) has to sustain over
8295-8335 area for further rally towards 8375-8425 & 8485-8545 zone in
the short term (under bullish case scenario).*
*On the other side, sustaining below 8265-8225 zone, NF may further fall
towards 8140-8080 & 8040-7940 area in the near term (under bear case
scenario).*
Nifty Fut (Jan) today closed around 8253 (-14 points), almost flat after
a tepid day of trading ahead of Q3FY17 earning season and some macro
data (CPI/IIP) later this week.
Market may be also cautious about EC’s stance tomorrow about any
postponement of budget presentation day as it now seems that Govt is in
no mood for any change in that, being scheduled on 1^st Feb’17, despite
the fact that even CBSE/ICSE exams are being rescheduled across the
states. Govt may be in no mood for “vote on account” either on 1^st Feb
and presentation of the full budget, including railway budget after the
state poll process ends on 8^th March.
Domestic market today opened in a negative note amid gloomy GDP
projections by the CSO till Oct’16, even before the demonetization
period despite overnight positive global cues and supportive morning
Asian market on the back of upbeat US NFP report on Friday. NF made an
opening session high of around 8272 and late day low of 8241 in an
extremely low volume market; Japan was closed today.
Markets may be somehow skeptical about Q3FY17 earnings, which will kick
start from tomorrow with Indusind Bank and Infy/TCS later this week.
Although, there may not be any significant adverse effect of the
demonetization on the IT companies and on the contrary, it may help them
for the “digital economy” theme, especially some small IT companies,
Banks may be the biggest loser apart from the other consumption sector.
In Q3, due to direct impact of demonetization, banks may be too much
concentrated on cash/currency management, which may adversely affect
their other sales operations (loans, cross sales, direct fee income etc)
and consumer sentiment was also not good for any direct sales or
cross-sales.
On the other side, operating costs of the banks may be increased
multifold after demonetization and despite low cost CASA/ demonetized
bank deposits; there is no incremental demands of loans. Treasury
profits because of favourable movements in bonds and some unexpected
spurts in repayment of loans/NPAS/NPLS with old demonetized notes may
save some of the banks also. But, going forward acute cash flow mismatch
in the system, “destruction of wealth” (war on black money), and
economic disruption after demonetization may hamper the credit
portfolios of the banks as well; specially SMES & retails.
As banks has to provide some interests on the demonetized deposits
(savings portion) and at the same time, its earning nothing out of it
due to lack of deployment or RBI CRR issue, NIM may be in pressure for
Q3 as well as for Q4FY17 also. Banks has also reduced MCLR significantly
after rebuke from the PM in his 31^st Dec address to the nation and if
RBI does not cut in Feb’17, NIM of the banks may be under severe
pressure further. Also, new Ind-AS accounting norms may be negative for
banks.
Although, traditionally Q3 is a lean season for IT companies, their
guidance will matter, especially after Trump related “America First”
rhetoric & H1B visa issues. Also, lack of timely adaption of latest tech
(AI/Cloud etc) by the big Indian IT companies may be a negative factor
despite advantage of a strong USDINR.
As par some reports, Govt in its stance of collecting more
“contribution” (taxes) from the capital market, may change the very
definition of LTCGT and may define it as minimum holding of 3 years
against 1 year as of now.
This mean that investors/short term traders, who booked “profit” before
3 years has to pay short term capital gain taxes. This may be negative
for the Indian market, even if STT is scrapped in the budget.
Govt may also tinker some DTTA rules and GARR is also scheduled to
commence from April’17. Thus, capital market taxation issues may be a
near term headwind for the Indian market apart from the pain of
demonetization.
Apart from the FII(s), there may be adverse impact on the DII(s)
portfolio return also, if such definition of the LTCGT is changed from
one to three years.
Although, the incremental tax revenue growth of 12.01% in the first nine
months of FY-17 is quite encouraging as reported by the FM today, part
of it may also be related to the scrapping & some exception of the old
demonetized notes for various Govt tax purpose (either by direct deposit
or by digital banking).
Actual “buoyancy” of the tax collection after demonetization may be more
clear in Q4FY17 and subsequent quarters as Q3FY16 tax figure may be
related to economic activities prior to demonetized period. Tepid PMI
figure, well below 50 may be one of the available high frequency data,
which is pointing towards real slowdown (contraction) in the domestic
economy after demonetization.
Globally, USD is gaining strength today after upbeat NFP report (higher
wages) on Friday. Also a “Hard Brexit” comment by the UK PM on Sunday
has helped the GBPUSD to go down significantly, causing some strength in
the dollar index.
Despite robust set of recent UK economic data as a result of depreciated
currency (GBP), market is concerned about “Hard” Brexit and UK’s stance
on the key immigration issues along with EU’s insistence for free access
of the EZ trade related on it (immigration). Thus, any “Hard” Brexit in
lieu of “Soft” Brexit may not be good for the UK/global market as well
as Indian market. For UK, all focus may be on the SC’s verdict there
about taking approval from the UK Parliament before invocation of the
Article-50.
Another source of potential headwind may be China this year. Apart from
the rhetoric of US-China trade war, Chinese Yuan devaluation and
significant depletion of its FX reserve may be a cause of some real
worry. As par some reports, USDCNY may be rallied towards 7.30 in FY-18
due to perception of “Trumponomics” and higher capital outflow from
China. PBOC is basically now going all out to regain control of the Yuan
before Trump take charges of the Oval office on 20^th Jan’17.
And lastly, don’t’ forget Greece also; renewed concern about banks there
and sudden surge in the credit risks is also dampening EU market
sentiment today.
<https://2.bp.blogspot.com/-BqQfzeG8Zr8/WHOWrYNIGnI/AAAAAAAAKF4/g7a_DVR-jGsMBgaan8TCO7qMDaBzFLVRwCLcB/s1600/SGX-NF-PATTERN-09-01-2017.png>
SGX-NF
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Thanks & Regards,
Asis Ghosh
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