NiftyforAll: Weekly Review

Saturday, December 05, 2015

Weekly Review - 07.12.2015

Dear All,

While a slide in the dollar following a less-than-expected stimulus by the European Central Bank (ECB) spelt some relief to Asian currencies, the rupee hit a fresh two-year low and was staring at the 67 mark on Friday.

The ECB played spoilsport on Thursday by announcing a less-than-expected stimulus for the slowing economy of the region. The move triggered selling across equity markets globally. However, the euro and different Asian currencies, barring the rupee, were trading firm against the US dollar on hope that a rise in the euro will put a halt to the dollar rally, at least for the time being.

Analysts said there might have been winding up of carry trade between the rupee and the euro, which may have been weighing on the domestic currency.

RBI's liquidity infusion

The Reserve Bank of India will conduct bond purchases of up to Rs 10,000 crore via open market operations (OMO) on Monday. The central bank will also conduct a 28-day variable term repo for Rs 25,000 crore to inject funds into the banking system. Rating agency India Ratings in a note said, "RBI's decision to infuse liquidity via both term repo and open market operations (OMO) routes will have a salutary and sentiment impact on money market rates as well as bond yields."

"Theoretically, RBI's intention to open the OMO window to infuse rupee liquidity may be negative for the rupee. However, losses in the rupee may be contained to a large extent by exporters' dollar sales and positional unwinding of the dollar as we near the December 15-16 FOMC meeting," the rating agency added.

Impending Fed rate hike :

The real culprit behind the recent slide in the rupee and other currencies globally is the impending Fed rate hike. Fed chair Janet Yellen on Thursday warned that waiting too long to wind up the near-zero interest rate regime could propel the central bank to tighten too quickly. It is most likely that the US fed will raise interest rates in December 15-16 policy.

CEA panel for removing tax on inter-state trade

A panel headed by Chief Economic Adviser Arvind Subramanian has recommended the one per cent tax proposed to be levied on the goods and services tax (GST) on inter-state trade of goods to help manufacturing states be done away with. This is one of the major demands of the Congress and the recommendation could help the government break the GST gridlock in Parliament.

In a report to Finance Minister Arun Jaitley on Friday, the committee recommended the main or standard GST rate be in the range of 16.9-18.9 per cent. It prefers it to be between 16.9 per cent and 17.7 per cent. The standard rate will apply to most goods and services in the new indirect tax regime. These rates were calculated by excluding real estate, electricity, alcohol and petroleum products.

The report comes at a time when uncertainty over the fate of the GST Bill persists despite Prime Minister Narendra Modi himself having sought to break the ice with the Congress, which has made three key demands for lending its support for the indirect tax reform including removal of the 1% extra tax and including the GST rate in the Constitution itself.

While the removal of the 1% tax or cutting its life from three years mentioned earlier is under the government’s active consideration, it is unlikely to specify the GST rate in the Constitution. With 100% compensation for states for the first five years of GST for any revenue loss likely, the rationale for the 1% additional tax no longer existed, officials said.

But some sources said the Congress was still undecided on to what extent it can compromise on its demands. The party’s support is essential for the passage of the Bill in the Rajya Sabha where the ruling alliance is in a minority.

Experts said that if petroleum, real estate and liquor are kept out of GST in the initial years as proposed in the Bill passed in the Lok Sabha earlier this year, the available tax base would shrink and, hence, the combined Centre-state GST rate could be more than 20%.

Government sources said in such a scenario, the attempt would be to eventually bring down the rate as the tax base expands. A select panel of Rajya Sabha which reviewed the Constitutional Bill had suggested that the rate should not exceed 20%. Finance minister Arun Jaitley too promised that the GST rate would be much lower than the previously discussed 27%.

The Modi government will have to get manufacturing states, especially Gujarat, to accept the proposal not to have the 1% tax. Gujarat, Maharashtra and Tamil Nadu have been the most vocal about having an origin-based tax on interstate sale of goods, saying that they have attracted industrial units by investing heavily on infrastructure.

At present, Congress party leaders and former Cabinet ministers P Chidambaram, Anand Sharma and Jairam Ramesh are examining the government’s response to their demands.

The opposition party also wants a dispute resolution mechanism within the GST Council, but the view taken by the government during the UPA regime and accepted by the current leadership is that dispute resolution, which has a bearing on the essential legislative powers of the Parliament and state assemblies, cannot be subject to other structures. At best such structures can be recommendatory in nature, not statutory.

The Congress also wants inclusion of petroleum products within GST starting from the initial years, but the select panel of the Rajya Sabha did not accept the recommendation, leaving it to the proposed GST Council.

>>> Nifty Daily Chart <<<

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Almost a Head and Shoulder on daily Chart. If breaks - Fall to continue.

>>> Nifty Hourly Chart <<<

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7770-80 if holds, Expect a good bounce as shown on chart. Our EW counts also suggest the same. But if breaks then, the counts may be invalid and fall to continue.

>>> Bank Hourly Chart <<<

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Bullish Cross over is still ON. If the current fall is for Wave X, Expect a bounce back soon - next week.

>>> AXISBANK - Hourly - Follow Up - Hold Long <<<

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Holding our Long on Axis Bank. Above chart suggest, Price to rally if breaks above the trend line. RSI already on a break out.

>>> SBIN - Hourly - Expect Rally <<<