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Market Commentary 15 December 2016
Markets to make a soft start on weak global cues

 

A session after showcasing a vivacious rally, Indian equity benchmarks faltered and failed to extend the winning momentum on Wednesday as market participants refrained from taking any big bets, awaiting the outcome of the U.S. Federal Reserve meet wherein the interest rate policy of the world's largest economy will be decided. Investors are keenly waiting for clues about future policy and the economic outlook under President-elect Donald Trump from Fed Chair Janet Yellen's press conference. On the domestic front, sentiments were undermined after Congress vice president Rahul Gandhi claimed that he had ‘personal information' about corruption by Prime Minister Narendra Modi but that he wasn't being allowed by ruling lawmakers to speak about it in Parliament. However, the downside remained capped with Finance Minister Arun Jaitley holding hopes of tax cuts in the future as higher revenue gets generated by a cashless system that will allow transactions to be tracked, following the November 8 demonetisation announcement. According to him, cancelling the old Rs 500 and Rs 1,000 notes will help India move toward a 'less-cash' economy and rising digital payments will deliver multiple benefits. The government was rapidly replacing old currency with new notes and significant amounts will be injected into the banking system over the next three weeks. Adding the concerns over banking industry, RBI's latest report indicated that credit or loan growth for the fortnight that ended November 25 declined to 6.6% from 7.9% on a year-on-year basis in the previous fortnight. But at the same time, the note ban had some positive effect too, as borrowers, including some default accounts, paid back as much as Rs 66,000 crore during the same period. In contrast, during the same fortnight, banks received huge inflows as people deposited as much as Rs 4.03 trillion into the accounts, which as of December 9 crossed Rs 12 trillion, putting all calculations of the Government into a tizzy. Investors got some comfort with positive economic data, while the retail inflation fell to a two-year low in November due to the ongoing cash crunch following the demonetization drive, the country's current account deficit (CAD) narrowed by more than a percentage point to 0.6 percent of GDP at $ 3.4 billion in the July-September, on account of lower trade deficit. Furthermore, Wholesale Price Index (WPI) inflation continued its easing trend for the third straight month in November, falling to 3.15 per cent. Finally, the BSE Sensex declined by 94.98 points or 0.36% to 26602.84, while the CNX Nifty dropped 39.35 points or 0.48% to 8,182.45.

 

The US markets closed lower on Wednesday, as investors grappled with the prospect of a faster pace of rate increases in 2017 than had been previously forecast. The Federal Reserve raised its key short-term rate as had been universally expected, but it also forecast three rate increases in 2017, compared with the two that had been anticipated at its previous meeting in September. While the revised outlook could be taken as a positive sign - the Fed has said it would only raise rates when it deems the economy strong enough to withstand such a move - it added an element of uncertainty to the market. At the same time, the Fed's so-called ‘dot plot' showed the central bank has now penciled in three rate hikes in 2017 instead of two under its prior forecast. In raising rates, the Fed moved its key short-term rate to a range of 0.5%-0.75% from 0.25% to 0.5%. The Fed decision marks the central bank's first increase in rates since last December, which itself was the first in about a decade. On the economy front, sales at US retailers barely rose in November, but the weakness stemmed mostly from the biggest drop in sales at auto dealers in eight months. Retail sales increased a seasonally adjusted 0.1% in November. Sales growth in October was also lowered a bit, revised government figures show. The Dow Jones Industrial Average lost 118.68 points or 0.60 percent to 19,792.53, Nasdaq was down 27.16 points or 0.50 percent to 5,436.67, while S&P 500 dropped 18.44 points or 0.81 percent to 2,253.28.

 

Crude oil futures suffered sharp slump after the government reported a build in US oil inventories, also as the Fed released a very hawkish report on its future US interest rate policy, a hike in US interest rates drove money away from commodities. Data from the U.S. Energy Information Administration (EIA) showed that commercial crude inventories last week declined by 2.56 million barrels to 483.19 million barrels. Gasoline stocks rose by 497,000 barrels, while distillate stockpiles, which include diesel and heating oil, fell by 762,000 barrels. However, the crude stocks at the Cushing, Oklahoma delivery hub rose by 1.2 million barrels. EIA data also showed that refinery utilization rates rose by 0.1 percentage points and Refinery crude runs rose by 57,000 barrels per day. Benchmark crude oil futures for January delivery slumped by $1.94 or 3.7 percent to $51.04 on the New York Mercantile Exchange. In London, Brent crude for February delivery ended lower by $ 1.82 or 3.3 percent at $53.90 on the ICE.

 

Snapping its two-days losing streak, Indian rupee bounced back against greenback on Wednesday due to increased selling of the American currency by exporters and banks. Traders got some support with positive economic data that retail inflation fell to a two-year low in November due to the ongoing cash crunch following the demonetization drive, while the country's current account deficit (CAD) narrowed by more than a percentage point to 0.6 percent of GDP at $ 3.4 billion in the July-September, on account of lower trade deficit. Moreover, Wholesale Price Index (WPI) inflation continued its easing trend for the third straight month in November, falling to 3.15 per cent. However, investors awaited the outcome of the U.S. Federal Reserve meet wherein the interest rate policy of the world's largest economy will be decided. Finally, the rupee ended at 67.44, 10 paise stronger from its previous close of 67.54 on Tuesday.

 

The FIIs as per Wednesday's data were net sellers in equity and debt segments both. In equity segment, the gross buying was of Rs 3992.73 crore against gross selling of Rs 4724.59 crore, while in the debt segment, the gross purchase was of Rs 4157.15 crore with gross sales of Rs 4568.59 crore.

 

The US markets made a soft closing of the last session as the trade remained volatile, as investors grappled with the prospect of a faster pace of rate increases in 2017 than had been previously forecast. In raising rates, the Fed moved its key short-term rate to a range of 0.5%-0.75% from 0.25% to 0.5%. The Asian markets have made a weak start after the U.S. Federal Reserve raised its key interest rate for the first time in a year and also hinted at a more aggressive pattern of rate increases in 2017. The Indian markets losing their momentum in the final hours made a soft closing in last session, today the start is likely to be weak amid disappointing global cues and the markets will be extending their somberness for yet another day. Traders will be reacting negatively to the hawkish tone of the US Fed, while on the domestic front, traders will be concerned with global rating agency Standard & Poor's statement that demonetisation has cast a shadow over the RBI's competence and independence, it further said that slow replacement of the abolished bills has sparked a shortage of cash that has hit large parts of the economy.  Meanwhile, Prime Minister Narendra Modi has said that presently, cleaning the system from black money and corruption is very high on his agenda and added that India is currently witnessing an economic transformation. There will be some buzz in ports and shipping stocks, as the Cabinet has approved the Major Port Authorities Act, 2016, which seeks to infuse professionalism in and increase the autonomy of the 12 port boards and, more importantly, allow future public-private partnership operators to fix tariffs based on market conditions and only notify the port authority.  There will be some respite in PSU oil marketing companies as the global crude prices witnessed a sharp decline overnight.

 

Support and Resistance: NSE (Nifty) and BSE (Sensex)

 

Index

Previous close

Support

Resistance

NSE Nifty

8,182.45

8155.23

8219.53

BSE Sensex

26602.84

26521.15

26710.44

 

  Nifty Top volumes

 

Stock

Volume

(in Lacs)

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

ICICI Bank

130.63

260.55

258.80

263.50

Axis Bank

127.75

467.2

457.53

473.33

ONGC

95.36

305.3

302.45

309.80

Tata Power

88.26

78.7

77.73

79.28

SBI

86.73

262.9

261.38

265.33

  • Bharti Airtel's wholly owned subsidiary - Airtel Payments Bank will charge 0.65% fee on cash withdrawals.
  • Lupin has received final approval for its Desoximetasone Ointment USP, 0.05% from the United States Food & Drug Administration.
  • NTPC is reportedly planning to invest Rs 2648 crore for development of three coal blocks in Odisha.
  • Yes Bank's wholly owned subsidiary - Yes Securities has acted as an exclusive advisor to Fonroche Energie SAS for sale of 22.3 MW Solar projects in Rajasthan.
  • Coal India has reported a fall of 11.90% in its net profit at Rs 1097.57 crore for the quarter under review as compared to Rs 1245.77 crore for the same quarter in the previous year.
News Analysis