Nifty Futures Update 29th Nov 2016

SGX Nifty Futures

LTP   10,940.00   +26.00 +0.24% High 11,041.50 Low 11,001.00 (Change Vs Today’s Nifty Futures (NSE) Closing)

SGX Nifty

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Nifty Futures Update 29th Nov 2016

Nifty Futures / SGX Nifty closed the day marginally in the green post the gap down opening seen today morning. As per our analysis we had clearly mentioned yesterday that we do not see near term bearishness due to the policy measure taken by the Reserve Bank of India. Reserve Bank of India has raised CRR for banks by 100 percent mainly because RBI started running out of bonds that banks were wiling to buy but simply there were not enough bonds available and hence to stop the avalanche of money coming RBI moved the CRR higher so the question that many of you are asking me is that what sense does it make to hike CRR? The answer to that is simple RBI just has moved in a nee jerk manner for the time being and will be forced to cut rates very aggressively as hike in CRR will not solve the problem neither does it give it much time.  There are still huge deposits that are taking place and the only way to manage them is to force lending and loan off take or in other words credit off take has to take off and for that to happen rates in terms of PLR has to start moving lower and not lower by 0.25 bps it has to move lower significantly if not drastically. Since most banks are now stuck in a odd situation we do not think the banks will wait for long to cut rates both deposit rates and lending rates as frankly they are left with no choice but to ensure that loan off take starts and picks up pace at a drastic pace because everyday banks are still getting huge deposits and withdrawals are very slow for a variety of reasons but whatever the reasons that may be banks will have to pay interest on those deposits and the  only way for them to pay and service their interest cost will be to lower both deposit and lending rates aggressively if not drastically.  Once again understand the Banks situation and even the RBI’s situation and put yourself in their own shoes and think what is the way out? and you will land up with only one answer cut deposit and lending rates drastically. There is no other way out of the situation.

Some may argue with the fact that rupee has been very weak off late and cutting deposit rates means lower bond prices which fell almost to a 7 year low to 6.1 percent last week so many may argue that RBI may not move because of the rupee for the fear that rupee will witness a further pressure due to the outflows from bonds but personally I see that equity inflows will take care of that part of the problem and I do not see that if rate cut and sharp rate cut takes place then beyond a few minutes it will impact the rupee but anyways regardless of whatever the rupee does it does not matter because frankly what choice do the banks and RBI have? The only way for them is to ensure sharp rise in credit off take and we see that happening at lower rates from current levels.  The move by SBI last week signals that very same thing that what options are available and logically there are no options available for now other than cutting rates drastically and keep in mind that it is nothing but a time bomb  the more time these people take the larger the degree of the rate cut will have to be it is as simple as that, if the banks and RBI start cutting now then and only then can this problem of excess liquidity be take care of.

Nifty in the near term we do not see much downside though we could see volatility and then whenever the news of rate cut comes in we could see a very sharp rally though we do not see that lasting for long but in the near term we do not see any sense in being short. The sentiment indicator also which we have developed shows almost same reading that we have seen at around the 6900 levels last seen in late FEB 2016 so when suddenly nobody wants to buy and everyone wants to just sell that has always been a area of a sharp pullback and we believe that history repeats itself and future is nothing but a repetition of the past so same sentiment indicators suggest that near term short selling will not make money but please keep in mind that once this pullback ends we see prices heading lower towards the 5872 target so this is not a buy and hold zone it will be a trade in and trade out and in between in this pullback also we do expect to see a lot of volatility so if you are only trading on the basis of this post then please use appropriate risk management and then only trade. Please do not over trade and keep your risk under control at all times.

Good Trading To You!