-------- Forwarded Message --------
Subject: Nifty Gave A Thumping Rally Inspired By Fed Induced "Risk On" Mode----Will It Last ?
Date:   Fri, 23 Sep 2016 06:42:58 +0530
From:   Asis Ghosh <asis...@gmail.com>
Reply-To:       asis...@gmail.com

Nifty Fut (Sep) today closed around 8878 (+0.81%) after a Fed inspired gap up opening session high of 8918 and day low of 8861.

*Looking ahead, for tomorrow (22/09/2016), NF has to sustain over 8925-8975* zone for further rally up to 8995/9005-9075*-9185/9205 zone in the near term.*

*On the other side, sustaining below 8865-8845* area, NF may fall towards 8795/55*-8705-8655/25 zone in the short term.*

From yesterday's BOJ & Fed stance, it seems that market (risk assets) are happy with Fed for the time being, but somewhat confused over BOJ's latest stance of QQE-YCC (quantitative & qualitative easing with yield curve control).

Some analysts are also dubbing this (QQE-YCC) as BOJ's attempt for a slow backdoor tapering or "stealth tapering". Global market is still in doubt over BOJ's capability to steepen the 10YJGB bond yield, stimulate some inflation in the economy and at the same time depreciate Yen. Some are also apprehending the latest attempt of BOJ as monetization of Govt debt and an indication of BOJ's limitations.

Also, yesterday's Yellen presser (Q&A session) may be indicating that she is a reluctant (confused) "hawk" and it was her tone of indecisiveness has prompted the broad based USD selling and carry trade got a boost among high yielding commodity currencies, resulting in an overall "risk on" mode.

It also appears that Fed is moving as par geo-political events rather than pure economics. Fed may be also concerned for the US (Presidential election) as well as on the global front (Brexit, Italian referendum & EU/China banking woes) and is itself confused about any definitive forward guidance. Its also slashed projected US GDP growth, unemployment rate and PCE(inflation expectation) for 2017-18, which may also be an indication of its lack of confidence on the US economy itself.

As US election is getting nearer, Fed will not "disturb" the stock market and in that sense, Fed's current "dovish hold" stance was also highly anticipated.

But, more than the question of a symbolic Fed hike, market & US politics may now focus on the core economy of US and going forward, "main street" will decide the next US President rather than the "wall street". Thus, next driver of the global market may be the US election and the forthcoming series of Presidential debates.

As par some analysis, if one considers the falling participation rate wrt 2008-09 level, then the true unemployment rate may be around at least 2% higher from the present rate of 4.9% in US. A significant number of people are now out of work force because of lack of necessary skills, automation & artificial intelligence and also lack of adequate employment opportunities. Fed may be also fully aware of that and thus repeatedly asking for Govt sponsored fiscal & structural measures rather than relying only of monetary stimulus. This may also partly explain the huge response that Trump is getting now despite portrayed as a likely source of disruption.

Thus rather than Fed rate hike "risk" in Dec, US election may be be the main driver of the US as well as global market in the near term.

So, in Dec, Fed will hike if Trump does not win and will not hike, if Trump wins. Both are negative for "risk assets".

Apart from the US election risk, China's Yuan inclusion in the SDR basket on 1-st Oct may also be keenly watched.

Back to the Indian market, it opened gap up as expected following Fed tunes, but could not hold the initial buzz as immediate profit booking came (long unwinding or fresh shorts).

Yesterday, India for the 1-st time in nine years reported current account surplus (as expected). Although, it may be a great news, it may also indicating tepid economic activity both in import & export front and lack of private investments.

Today, GST council are scheduled to meet officially for the 1-st time after the recent GST amendment bill and as par some reports there may be significant difference among states and the centre for setting up of final GST rate (RNR) and some other administrative procedures.

Also, there is a buzz by one of the BJP/RSS's own member (SS) to dissolute the present GSTN company being a JV between the Govt and some private companies having significant foreign owner ships to form a 100% Govt owned co for the same and a PIL is pending before the SC questioning some points about the GST.

As par some early indication, GST-RNR may be 20% against earlier estimate for 18% (slightly negative to neutral for the market sentiment).

Any indication that its not possible to roll out GST by April'17 for any reasons (political or administrative) may be negative for Indian market in the near term.

All eyes will be also on 4-th Oct for RBI policy meet. Although, there is virtually no hope for any rate cut this time, some section of the market are also looking for a 0.25% "Diwali Gift" by the new RBI Gov/MPC as CPI suddenly fall to 5.05% and Fed is also on hold, at least till Dec.

But, RBI may focus on the forthcoming FCNR redemption (around $15 bln) and Fed's actual rate hike scenario in Dec to take a call in Feb'17 (just after Budget). Divergent rate action between Fed & RBI may affect present interest rate differential and Indian bond yields.

Also, RBI may give more thrust on the full transmission of the previous rate cuts by the banks and proper resolution of the stressed assets in the Indian banking system (specially PSBS). After all, if Banks are unable to pass on the previous 1.50% repo rate cuts by the RBI, then what will be the benefit of such cuts in future ?

Incidentally, IMD today said that overall monsoon this year is still 5% and due to current excessive rains in some parts of the country (Mumbai/Raigarh/AP), it may end up with 2-3% deficient this time against earlier projection of 5-6% above LPA & then normal.

At around 9000 Nifty, TTM PE may be around 24.65 and that may be most expensive among the EM peers.

Stock specifically, today Auro Pharma rallied significantly after it got US FDA approval for an anti-HIV drug.

Sector wise, banks, infra, oil& gas supported the market today, while IT drags it to some extent.



Thanks & Regards,

Asis Ghosh

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