*Technically Nifty Fut (Dec) now (LTP: 8210) has to sustain over
8255-8275 area for further rally towards 8335-8375 & 8445-8485 zone.*
*On the other side, sustaining below 8175-8145 zone, NF may further fall
towards 8065-8000 & 7955-7900 area in the near term.*
*Market Wrap: 01/12/2016 (17:30)*
Nifty Fut (Dec) today closed around 8210 (-50 points) in a subdued day
of trading after making an opening session high of 8272 and closing
minutes low of 8205.
Indian market today opened almost flat following tepid global cues after
yesterday’s block buster rally in oil, helped by the historic OPEC deal.
But, costly oil may not be good also for an oil importing economy such
as India and also for China & US. Overnight US market closed almost flat
despite rally in energy shares.
Today, China PMI data came above expectation, but that may be also a
seasonal factor in Nov, when Govt supported real estate market there.
Now, with increasing regulations and tighter monetary policy by PBOC,
this may not be repeated in Dec. Metals were under pressure as a result
of this China tightening and tepid AU data, despite “Trumpflation” &
more infra spending.
Another global headwind for the Indian market may be consistent strength
in USD as a result of upbeat US economic data and surging bond yields
for the “Trumponomics”.
FPI(s) are consistent sellers in the Indian market for the last few
months even before the US election, when there was no “Trumpism”
probability, because the recent trend in nationalistic politics (Brexit)
may have induced an urge to look into the “Real Streets” rather than
“Wall Streets” for the policymakers/politicians and thus, whoever be the
next US President, be it Clinton or Trump, is bound to spend, more or less.
Now, with Trump, market is assuming that he is fiscally loose and
monetary tight; i.e. there may be some structural shift in US/Fed
monetary policy and fiscal stimulus will be the main theme along with
gradual reduction in monetary stimulus.
The same trend may also be followed by other major economics like Japan
& EU, where despite years of QQE, growth & inflation is nowhere and the
recent geo-political events like Brexit, Trumpism has proved that such
“black swan” can influence the world of currencies in a matter of days,
which QQE has failed to do over the years. GBP slumped overnight as a
fallout of Brexit and Yen also depreciated significantly against USD
after “Trumpism” much to the delight of BOJ, which has failed to do so
despite months of various “experiments” under Abenomics/Kuroda.
Thus the days of global flow of “easy money” may be at their end and the
present “Trump Tantrum” may also cause more EM currency carnage. INR may
be more affected for the demonetization led disruptions despite RBI’s
best effort to stabilize the G-SEC bond yields in the coming days and
that may accelerate FII (s) outflow.
Till now, DII(s) are absorbing a large part of the FII(s) selling, but
it may be very tough even for the DII in the days ahead as the
demonetization & “war on black money” approach by the Govt may even
affect the investing capacity & sentiment of the Indian retail clients.
FII & ETF and DII liquidity may be one of the main factors for the
stupendous rally for Indian market since March’16 despite stretched
Domestic market sentiment may be also affected today after Markit Mfg
PMI data came at 52.30 for Nov against prior figure of 54.40 (estimate:
52). This is the biggest one month decline since March’13. This may be
an indication of slower economic activity after demonetization led
business disruptions as feared. In Dec, the figure may be further worsened.
Today, Maruti & Eicher reported blockbuster Nov sales quite
unexpectedly. But, on closer scrutiny, it came on the back of surge in
sales in lower end models for Maruti (Alto & Wagon-R), which may be an
indirect beneficiary of Demonetization in Nov as people with “black
money/unaccounted cash” may have rushed to buy these models, rather than
surrendering it to the Govt or destroy it (there are many loop holes in
the system to utilize unexplained cash without going to banks). The same
may be true for Eicher and other 2-W makers and this Nov surge in sales
may not be repeated in the months ahead.
The true state of ground economy after demonetization may be felt by the
slump in domestic sales for M&M and also for Ashoke Leyland, where
LCV/UV/Tractors sales has fallen significantly more than market
consensus, which may not be good for the core Indian economy.
Towards, the closing session of the day, market sentiment was further
deteriorated after R-JIO announced another extension of the freebies
till March’17, which resulted in plunge of telecom stocks instantly. As
expected, R-JIO will now give more thrusts to the “Digital Indian
Economy” theme and on its JIO-Money (like PayTM).
The present R-JIO freebies may be great for the consumers, but may not
be good for the Reliance investors. It will be interesting to see, how
much tariff R-JIO can generate from its present pool of “free customers”
(almost whole India), once it starts giving service commercially.
Another factor is that due to present political deadlock and
Demonetization led disruptions; passage of final GST & implementation of
the same from April’17 looks very difficult and also may be impossible.
Naturally, Govt may say that it will implement the GST from Sep’17 for
the time being (already hinted by the FM few weeks ago).
But, considering series of state elections and 2019 general election,
for which ground preparation may be already started or will be at its
peak in late 2018, Govt may not risk taking another “political suicide”
as the present Demonetization “master stroke” may have already taken all
the “stamps, bails & the pitch”; there may not be any “pitch” left for
playing another “master stroke” in the foreseeable future.
*Indian market may not be discounted till now for a “No GST” till 2019
general election. *
Also, as par latest reports, an amount of around Rs.11.50 lakh cr has
been deposited with the banks in the old 500 & 1000 notes since
announcement of the Demonetization. It seems that as par the latest
trend, more than the estimated Rs.14.50 lakh cr may be deposited with
the banks till Dec-31 and with the RBI till March’17, especially after
the Govt announcement of another VDS/Amnesty scheme @50% tax (fake or
counterfeit notes entering into banking system as banks may got more
than the official circulation of the same by the RBI).
Govt may be hoping for a windfall gain for Rs.3.50-4.50 lakh cr as this
amount hoarded by the so called “idiot black money holders” may not be
returned into the system for fear of high taxes & prosecution. But the
same were not “thrown” at all to the “Ganges or Yamuna River” as
expected and instead may be already converted into new notes or will be
converted soon and contrary to the earlier perception, it may be a
liability of the RBI in its balance sheet, where an expenditure of
around Rs.1.50 lakh cr may have already incurred in the P&L A/C as a
result of the Demonetization, apart from the bank’s individual expenses,
which may be also huge.
Thus, overall collateral damage to the Indian economy may be more than
the expected benefit as a result of this Demonetization as 85% currency
note replacement at one “masterstroke” may not be so easy at one
“masterstroke”; rather than its now proving as “administrative
nightmare” in a country like India, where “cash is king” with very
little digital technology/education for most of the people.
As par various reports, only 6% of “black money” may be trashed into old
notes and the rest has already converted into other forms of financial
assets either in India or out of India. Only 0.02% of the people of
India may hold some types of “unaccounted/black money” and for that,
this Demonetization effort by the Govt may be an indication that Govt
believes all its citizens as some types of “crooks” despite its best
effort to divide Indian into a "rich" & "poor" class (with or without
As some analysts/economists are terming the present Demonetization as
“running an economy without oxygen” or “intentional bursting of a racing
car tyres” in the Indian context, the same may not be wrong at all
despite the current Demonetization might be turned virtually into
another VDS/Amnesty scheme as the Govt does not have any intentions for
the reform of “political donation” system in our country, where the
vicious cycle of corruption starts first and ends at the bottom of the
economy & /bureaucracy (more Governance & more corruption). The root
cause of the corruption (higher taxation & Governance) and specific
"patients" (black money holders) may be treated first rather than the
symptoms (old currency notes) & vast "healthy people" ("white money
/It's also certain that the present chaos of Demonetization may be
fizzled out by next 3-6 months, but the long term effect on the Indian
consumption story may be prolonged for at least next 5 years as the
similar "surgical strike on black money" has demonstrated the same trend
in China. /
Thanks & Regards,
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