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OP Thomas: India’s year-end growth rate estimated lower due to demonetisation
January 02, 2017
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The last trading week of the year witnessed a stimulating rally as equities climbed over two per cent, leading to speculation that bulls were back.
 
However, the buying was largely supported by domestic institutions while foreign institutional investors remained net sellers.
 
Indices gained in three out of five sessions of the week.
 
After falling below the psychological 26,000 level at the onset of the week, Sensex regained that mark later.
 
Nifty also reclaimed the psychological 8,000-mark.
 
The barometer index, the S&P BSE Sensex, jumped 585.76 points, or 2.24 per cent, to settle at 26,626.46, in the week ended Dec.30, 2016. The Nifty 50 index surged 200.05 points or 2.5 per cent to settle at 8,185.80.
 
The rally was supported by all sectors including FMCG and domestic institutional investors (DIIs) were major buyers of stocks.
 
FIIs continued their selling in the cash market and sold Rs5.85 billion in the week. Domestic institutional investors (DIIs) bought shares worth Rs725.25 billion last week and nearly Rs70 billion for the entire month of December.
 
Given the slowdown in domestic economy due to demonetisation by the Modi government future rallies are more than likely to be speculative.
 
On the international circuit, major events like US President elect Donald Trump’s new polices to boost growth will be watched closely.
 
Trump’s promises to ease regulations, cut taxes and boost infrastructure spending have spurred sharp gains in infrastructure shares and finance.
 
However, the worry is the widening fiscal deficit.
 
Now that Fed has hiked rate by 25 basis points and businesses want cheaper money in a soaring inflation scenario, the market will await new triggers.
 
One needs to watch the behaviour of the FIIs, who are sitting on the sidelines awaiting firmer signals on Trump policies. Till then, it’s a trader’s market.
 
For the coming week, Markit Economics, will announce the result of a monthly survey on India’s manufacturing sector for December 2016 and the services sector.
 
Not much is expected though as the growth rate for the year-end is estimated lower due the government’s demonetisation drive of higher currency notes and a ceiling on cash withdrawals by savers.
 
Other than this keenly watched will be the auto stocks December sales data and the PSU oil marketing companies, which will face a price hike.
 
The US markets will be closed Jan 2, so most players will watch for cues once the US markets is active.
So the year 2017 is being watched by big investors with nervousness of expensive US stock valuations with a threat of Fed likely to raise interest rates many times this year.
 
The sentiment is largely seen affected by Trump’s poll promise of easing taxes and increasing spending, especially, infrastructure.
 
Trump’s promises are now seen widening budget deficit. At home we have Modi’s game plan on the demonetisation arena.
 
A volatile week seen ahead in domestic equities. For the coming week, Nifty needs to breach the 8,230-8,275 level for any upward move.
 
On the lower side, Nifty is supported around 8,000, and if that is the breached, 7,750 is the next support level.

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The author is a business analyst covering
Indian markets, banking and economy
 

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