Nifty Update For 28th Dec 2017
Nifty has been moving perfectly along expected lines. The general sentiment as of now is that Nifty is heading for 11200 or at least 10800. After the Gujarat Election results we were expecting Nifty to move higher and it did move higher although BJP did get much more lesser seats than what we were expecting them to get. Now with the elections and sentiment driven news out of the way the important aspect to note is that there are headwinds building for India almost every single day like Crude Oil for instance is consistently moving higher which implies that either Govt will have to cut taxes on petroleum products which means that they will risk the fiscal deficit problem or the other option is that they do increase the petroleum prices then inflation will move higher which will force the RBI to raise rates so either side Crude Oil moving higher will remain a big headwind for India in the coming days but Crude Oil till now has been moving higher and we could see much more higher prices in Crude Oil even from here. We expect crude to continue moving higher even from current prices. Crude Oil has been making classical text book style higher tops and higher bottoms and till Crude Oil keeps doing the higher top and higher bottoms it will be negative for India either from an inflation stand point or Fiscal deficit stand point. The Govt announced PSU banks recap and how that will be funded and accounted for that too is not clear so overall it does not look good for India from a macro stand point in fact India’s macro keeps getting bad almost every single day and although that does not imply that equities will move lower immediately but surely they wont keep moving higher if macro economic situation does keep getting worse. The other important aspect we see for the next year is a big possibility of food inflation rising sharply due to various factors and that will keep RBI on high alert so more than Crude Oil driven inflation I would watch out for food inflation as a major risk for the next one year or so. Besides this interest rates increase from the FED and eventual tightening by the Euro zone and BOJ will also take money out of the Indian market that too is a big headwind but the most important aspect to watch out for will be Indian Bond yields and they continue moving higher and we do expect them to move higher to 7.50+ that will be one of the biggest risk to this equity rally. I am not suggesting that the fall has to happen tomorrow it can but not necessarily will tomorrow.
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