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SGX Nifty 5th Oct 2016
SGX Nifty / Nifty Futures today continued its pullback and closed in the green marginally. As per our overall analysis we could not understand what the MPC was trying to communicate. Today Reserve Bank of India cut rates by 0.25 bps on the expectation that inflation will come in lower in the coming months. There are two parts to this first is to understand is that if we go back to Jan-Feb 2016 no economist was expecting CPI inflation to rise so sharply over the past 6 months which has rises as per reported data and no economist was also expecting that WPI inflation will rise consistently for 6 months which is also a reported data so I do not know which economist is going to go right on inflation coming in lower over the next few months till now RBI was taking into account only reported numbers and was not acting on expected or rather projected inflation rates but today we have seen a change in that stance, further comments on neutral rates were unthinkable, I personally cannot understand how come a developed market interest rate regime can be equated to emerging market space, it frankly defies all the book and theory of economics but yet since it has been mentioned we will try to figure that out at a later date.
As per our understanding inflation will remain high (the absolute numbers may come in a bit flattish due to higher base effects in the corresponding period of last year) but net inflation will not come down as per our understanding in fact there are many parts to this and we expect inflation to still move higher which will be lead by both agricultural commodities and also crude oil prices which we also see that now is not headed below 38 and on the higher side will move towards 60$/bbl. Further we do not see a room for further rate cuts under best of circumstances for more than a 0.25 bps rate cut going forward even assuming that inflation will come in as per what Reserve Bank of India is expecting it to come so further there is not much room for monetary easing from current levels. The major problem in the banking system is and remains lack of depositors at current interest rates and we do not think banks will be able to pass on much as the real savings ratio is declining at a alarming pace and this will not help banks to get depositors at lower rates than the ones now.
Nifty Futures as per our analysis we do not see sustaining higher but volatility will be there please keep that in mind and both sides sharp price movement will be seen as per our understanding. US markets as of now are trading a bit negative and we are still waiting for confirmation that we were seeking on Monday so will update more later or possibly tomorrow. If you are trading only on the basis of this post please use appropriate risk management and trade. In the near term we could see both sides price fluctuations and some sharp declines and sharp pullbacks both will take place.
We remain very bullish on sugar space and on any sharp declines we continue to recommend buying ugar sugar and renuka sugar both these stocks will do very well in the coming time. Sugar prices are expected to firm up locally ahead of the festive season and we expect good results for ugar sugar and renuka sugar. There could be some positive news developments for renuka sugar in the coming few days traders do keep a watch on it. Crude oil futures we remain very bullish but keep in mind that it is also possible to see 43-41$/bbl so on sharp panics traders can accumulate crude oil futures. In the near term we see a resistance between 49-52$/bbl.
Good Trading To You!