*Market Wrap: 06/03/2017 (19:00)*
*Market may be already discounting a likely BJP win including UP (except
Punjab) and may rally towards life time high even before exit poll on
Friday evening in a classic scenario like “buy the rumour and sell the
news”; but in case of any unexpected bad result for BJP/NAMO, market may
also correct significantly by around 8-10% in the coming days.*
*Time & Price action suggests that, Nifty Fut (March @8978) has to
sustain over 9020-9035 area for further rally towards 9075-9125 &
9195-9260 in the short term (under bullish case scenario).*
*On the other side, sustaining below 8995 zone, NF may fall towards
8945-8900/8870 & 8830-8775 area in the near term (under bear case
scenario).*
*Similarly, BNF (LTP: 20740) has to sustain over 20950 area for further
rally towards 21050-21150 & 21350-21500 area in the near term (under
bullish case scenario).*
*On the other side, sustaining below 20900 area, BNF may fall towards
20750-20600 & 20500-20425/20250 zone in the near term (under bear case
scenario).*
Nifty Fut (March) today closed around 8978 (+55 points) after making an
opening session low of 8928 and late day high of 8985. Indian market
today opened almost flat following tepid global cues after North Korea
again tested some long range missiles, which incidentally landed in
Japan’s coast line territory (special economic zone). As a result, risk
trade was somewhat subdued and smart money was flowing towards safety of
Yen and USTSY and Japan as well as other major global markets except
China was trading lower. Global market was also tepid after an
allegation by Trump that during his election campaign & afterwards,
Obama wiretapped his mobile; although this was denied by the later
vehemently.
Elsewhere, political risk in France is again on the rise as a potential
Prez candidate (Juppe), who was also a former PM of France in 1995-97
has withdrawn himself from the Presidential election run up; Juppe was
seen as one of the market’s favourite candidate after withdrawal of
another market favourite candidate Fillion, hit hard by his wife’s graft
allegation. Although, the approval rate of extreme rightist candidate
(Le Pen) is now lower from the centrist candidate (Macron), it seems
that market does not trust the opinion polls anymore after tragic shock
of Brexit & Trumpism and any win for Le Pen can trigger another types of
Brexit (Frexit).
In this backdrop of ongoing geo-political risk, be it in EU or in US, it
seems that Indian democracy is politically very stable under leadership
of NAMO & his economic policies (Modinomics), despite DeMo blues. As of
now, there is no acceptable national political leader like NAMO and
despite, best effort by RAGA, he is nowhere in the real politics or
voter’s mind. Thus, as par the unofficial betting circles, BJP/NAMO is
going to win big in UP despite duel chorus of “Karan-Arjun” (Akhilesh &
RAGA). Also, BJP is expected to win all the other states except Punjab
by big margin and that is being discounted by the Indian market as of now.
A convincing BJP win in all the states including UP may bring NAMO for a
near majority in the RS and it may also virtually ensure smooth sailing
of him in the 2019 general election; we may see more effective
implementation of vital economic reforms including GST and land & labour
bills. But, election is also an uncertain event, especially for a big &
complex state like UP, where the present CM enjoys a significant
popularity and market may also remember some shocking result for
BJP/NAMO in the recent big elections in Bihar & Delhi. There is also
significant risk for NAMO in UP despite his repeated campaigns and road
shows, which may be also an indication that. BJP is not 100% confident
about its prospect in UP and thus want no stone left unturned; NAMO is
campaigning in UP like a general election & not a state election.
Indian market may further rally towards the life time high even before
10^th March, exit poll day in the evening on the hops of a massive BJP
win in UP, which is seen as a verdict for DeMo. But, even if NAMO wins
in UP by a major margin, market may also behave like “buy the rumour &
sell the news” after the actual election result on 11^th March
(Saturday) as despite all the narratives, valuations are not cheap at
Nifty 9000-9200 level and there are no lack of headwinds.
After state election euphoria, market may focus on realities like bank
NPA resolution, any spillover effects of the DeMo in Q4 & subsequent
quarters, Q4 earnings trajectory after better than expected Q3 earnings
on the back of various factors out of DeMo. Also, a hawkish RBI & Fed
and an impending threat of El-Nino this year along with growing EU
political risks, Trump Tantrum and an end of easy money policy by the
central bankers, including Fed, ECB, BOJ & PBOC are some of the major
headwinds.
Indian market today also took positive cues from the GST front as IGST,
CGST etc were approved by the GST council in the weekend as expected.
Now, GST council will again meet on 18^th March to finalize the final
draft laws and taxation slabs for various goods & services and the same
will go for the Parliament approval in the 2^nd half of the forthcoming
budget session. FM is very optimistic that Parliament & RS will pass the
final GST bill in this session and it will be implemented from 1^st July
or Sep’17. But, we may also see some GST politics as usual in the
forthcoming Parliament session as there are no lack of political
controversies or issues, for which both the ruling as well as the
opposition party may be blamed and eventually, the final passage &
implementation of GST may be further delayed to Jan or April’18, being
the next FY.
Also time is very short for an effective roll out of the GST from
July-Sep’17, especially for the small traders. If the small traders will
not register, then they will be not entitled for any input tax credit
and also, to prove that their gross turnover is below the required
voluntary threshold limit, they will need to maintain the account
properly and submit the return also.
So, a hurried roll out of GST may bring more chaos and thus BJP/Govt may
also want to implement it with a reasonable time period after actual
final passage of the same in the Parliament and in that scenario, a 2018
timeline may looks fair. Also, there are still various ambiguities in
the draft GST laws, like e-permit for logistics (interstate movements)
and service tax obligation for the outsourcing IT companies, which need
to be resolved in consultation with various stake holders.
At present form of GST, it may be a far cry from the concept of “one
nation & one tax” and also under various regulations & ambiguities in
the real life of business transactions (like bifurcation of the GST
dealers under state GST & central GST as par applicable turnover, which
may add more confusions and regulations & red tapes, instead of
deregulations). Above all, Indian business community is not yet GST
ready, especially the small traders as the bill is hanging in the
Parliament for now over a decade, thanks to the game of ping-pong
between BJP & INC; both are responsible for the inordinate delays in
this GST politics.
A defective GST in design may do more harm to the economy rather than
contributing anything meaningfully to the GDP & the earnings of the
corporates/business.
Domestic market was mainly supported by RIL today as more and more
analysts are upgrading it on the back of better prospects of R-Jio and
its Petchem/energy business. R-Jio has projected an EBITDA margin of 50%
and revenue of almost 50% of the total Indian market by FY-21. As on
date, the number one telecom operator in India (Bharti Airtel) has
around 35% o EBITDA margin; although the NP margin was around 13% in the
previous years, after R-Jio aggression, Bharti reported it as 2.77% in
Q3FY17 on standalone basis. The telecom industry may go for further
blood bath in its present war on data prices and the overall ARPU may
remain very tepid in the coming months, despite R-Jio’s optimism about
more value added subscribers for data at above 500/- pm. R-Jio may be in
a advantageous position for its low operating costs optical fiber cable
network and IP based protocols, but Bharti & Vodafone is also upgrading
their networks infra in a war footing; there may be significant
competition in the telecom/data space in the coming months.
IT outsourcing counters were in slight pressure today, after reports of
temporary suspension of the express H1B VISA facilities amid ongoing
concern about the whole issue as a result of Trump’s “America First” policy.
Iniaan market sentimet today also got some boost after GS upgraded Nifty
for an 2017 target of 9000 and 2018 target of 10300 on the nack of
expected earnings recovery.
*Technically, Nifty need to close consistently above 9000-9075 zone for
10100 in FY-18; othrwise it will come down to 7900-7740 zone.*
Globally, all eyes will be on next Friday’s US NFP job data as Yellen
virtually assured the market that Fed is going to hike on 15^th March,
unless incoming US economic data looks terrible in the next two weeks.
Although, it may not be proper for a central bank like Fed to rely on an
extremely narrow set of data for its monetary policy, the fact that
Yellen may be indicating a caveat for Friday’s NFP data rather than the
average for the last few months of the same just to give an excuse to
not hike the rate on 15^th March.
In any way, if Fed will not hike on 15^th March this time after so much
hawkish scripts and FFR is now around almost 90-100%, USD will be sold
off heavily. Although, a weak USD may be good for EM & the Indian
market, an abrupt fall in USD this time, in case of no Fed hike may also
trigger a “risk off “ trade around the globe and Indian market may also
be affected. On the other side, Indian market may not be yet discounted
for a March Fed hike and in that scenario, may also suffer some headwinds.
Apart from NFP this week, all the eyes may be on the ECB on 9^th March,
where Draghi may also unveil some hawkish stuffs as EU economy is
gradually improving on the back of a devalued currency and headline CPI
is also good; although core CPI remains tepid around 0.90%; ECB may
choose to be on the hawkish side just to have the parity between EURUSD
at present level, which may be ideal for both export & import
obligations of the EU economy; otherwise divergence between Fed & ECB’s
monetary policy may increase further. The same is true for BOJ & PBOC
and thus, easy money policy of all the major central bankers may be
coming to an end till next recession and RBI will have to be also on the
hawkish side, just to keep the present differential of USDINR & real
bond yields to attract FPIS inflows in the bond market.
<https://3.bp.blogspot.com/-2cNzpuV9eis/WL19XeUGlrI/AAAAAAAAKwg/_K6LOdNAkAYnntZFwHrRRigVzS8kl1u-QCLcB/s1600/SGX-NF-PATTERN-06-03-2017.png>
SGX-NF
<https://3.bp.blogspot.com/-Gwgdddsd_ck/WL19lGrCZKI/AAAAAAAAKwk/BO4PAvj7RIM4d6Qg_K4eGBu5t5yB0D_WgCLcB/s1600/BNF-PATTERN-06-03-2017.png>
BNF
--
Thanks & Regards,
Asis Ghosh
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