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SGX Nifty 3rd Oct 2016
SGX Nifty / Nifty Futures fell hard this week and has given a faster retracement below the last rising segment. As per our analysis we do expect volatility to continue as we have mentioned in our last update. The all important Reserve Bank of India policy meet is scheduled on 4th Oct 2016 when the new RBI Governor Dr. Patel will announce his maiden policy. There is a lot of talk about how Dr. Patel is under pressure to cut rates and how some people from north block have told him to cut rates very aggressively but most people are missing the point here. Reserve Bank of India has been well ahead of the curve in terms of rate cuts. It is the Banks who have not passed on the rate cuts due to mounting non performing assets and the other main factor that they are not getting sufficient depositors at current rates. At the end of the day the banks are a function of getting deposits at x rate and then lending that money at y rate but as per the data we can see that banks are not getting sufficient deposits at current rates, this has been one of the biggest problems and hence the rate cuts from the RBI have not been passed on by the Indian Banking system but still some people feel that rate cut by RBI will boost the economy. In our view RBI even if cuts rates the transition of that will not happen at least in the near term so what the RBI does in the near term frankly will not matter beyond 4th Oct 2016 in terms of the real economy but from a stock market perspective lets analyze what we see in store in a proper analytical manner and not wishful thinking. Mind you that my view may not concur with some of the readers here but still we will tell you what we have analyzed.
The CPI inflation reported last month was the first lower tick that we have seen in 6 months. In simple words CPI inflation has risen for 5 months out of the past 6 months, if we look at the WPI inflation it has been rising every month for the past 6 months. As far as we know RBI will have to take these numbers into account before they cut rates. The inflation data which has been reported over the past 6 months does not give any room to the Reserve Bank to cut rates at least for now. So in the upcoming policy despite north block wanting the Governor to cut rates we do not see how will the Governor move in spite of such sharp rise in inflation data so let us now come to the next part of the RBI meeting which will be the commentary by the RBI and in this we do expect that Governor will sound very neutral in his talk. So effectively we will hear that policy rates will be a function of data which is being reported. Further on a personal note since Dr. Patel is know to be very close to the out going Governor if he for any reason cuts rates will not hold Dr Rajan in good light so even on a personal note Dr. Patel will not cut rates as per our analysis. For those who say that 0.50 Bps rate cut is coming on 4th Oct 2016 we say that anything is possible if irrational decisions have to be taken then why 0.50 Dr. Patel can even cut the policy rate by 200 Bps as one of the leaders from current ruling party mentioned in a interview but knowing Dr Patel and his team we have observed that he is a rational person and not the one who will take orders. He will stick to the data and we expect that the upcoming policy and the ones to come will always be data dependent and not based on wishful thinking. In addition to the current inflation data not allowing Dr. Patel to cut rates there are other factors also. The first is dollar bonds which are about to expire will put pressure on the Indian Rupee the term for withdrawal will begin in a few days from now in addition to this FED will also be moving rates higher by 0.25 Bps on 2nd Nov 2016 and this will further put pressure on the Indian rupee, with two already big events in the next 30-60 days we do not think that it will be a wise decision to cut rates and further put pressure on the Indian rupee in the near term (there are a many other factors also which indicate that rate cut will not happen but we will not get into those for now)
Let us look at the next important event that happened a few days back. The massive breakout in sugar in international markets. As per our analysis we see that sugar prices are heading much higher from current prices and locally since the festive season is about to start this will add to the demand factor for sugar and we expect the net result of that is to see sugar prices moving higher, in the retail market we could see prices of around 60-70 Rs/Kg and that will help the sugar companies who are holding good sugar stock like Ugar sugar. We maintain our positive outlook on all sugar stocks and we reiterate that on dips traders can still accumulate Ugar sugar, renuka sugar and bajaj hindustan. We see that all these stocks will do very well in the coming time and by april 2017 we could see these stocks at much more higher prices from current levels. Please note that we do not recommend to buy only sugar stocks but keep in mind that these stocks mentioned here will do very well in the coming time. Internationally sugar prices in the near term could see around 30$ and that is not the final target we see that sugar prices internationally will even move more higher that those levels.
In our last update we had mentioned that crude oil and silver will do very well and they also have performed very well. Longer term we are very bullish now on crude oil futures and we see crude oil futures nearing to 60$/bbl mark. The bottom line is that the trend has turned up in crude oil futures corrections will come and go but overall prices will keep trending higher. the ideal strategy is to buy into panics sure we could still see one round of panic in crude oil which could take it to around 43-41$ area (not necessarily but possible) so if that is the case then buying and accumulating into panics will be a good trade. Silver also we see the same. Longer term trend is now up and we are not in the camp which feels that prices are headed lower to new lows. As per our analysis a fresh bullish trend is on for now.
Coming back to Nifty Futures the trend as per our analysis is down. Pullbacks will come and go and some sharp pullbacks also are possible but we do not see those pullbacks sustaining and markets could behave in a negative manner in the coming days with sharp pullbacks and hence trade as per our your own system with appropriate risk management. If you are trading only on the basis of this post please use proper risk management and then only trade. We may take a trade even against our view given here during intraday or may choose to do tactical trades and may not report them here. We may choose to report or may choose not to report those trades. Please do not think that all trades and multi baggers that we trade on will be reported here free of cost. Please keep this in mind. Nifty will be very volatile in the next few days and sharp movements on both sides will be seen so please be careful. Jupiter has changed house and moved to Libra and as per its current behavior it indicates uncertainty so since Jupiter represents expansion expect massive volatility in the coming days and sudden moves that could start out of now where. In such a time it will be best to only follow and takes trades in the direction of the main trend and avoid any counter trend trading. Astro cycle indicates there could be some sudden moves in the next 4 trading days. Be careful. Wednesday Mars in Capricorn makes a square to Jupiter in Libra and that will add to the amplification of sharp moves. Yesterday was the new moon in Libra and that also is a important astro signature. The price action seen on Monday especially the US markets on Monday will indicate a great deal about how the next 15 days will be so lets see what happens on Monday in the us markets.
Good Trading To You!