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OP Thomas: FIIs remain active net sellers in cash segment
December 05, 2016
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Exclusive to The Gulf Today

Equities remained volatile during the week with Nifty hitting a high of 8250.80 and a low of 8066.50. Over the weekend, Nifty ended marginally higher by 27.50 points from previous week’s close at 8086.80.

Foreign institutional institutions (FIIs) remained active net sellers in the cash segment while domestic institutional institutions (DIIs) were net buyers. For November, FII selling exceeded Rs170 billion at Rs174 billion and in debt they net sold Rs200 billion. DII equity buying for the same period was Rs132 billion and in debt, buying was Rs97 billion, according to the provisional data available with the exchange.

Last week was dominated by speculators, resistance was seen around 8250 and support around 8066.

Global markets

Global markets have been lacklustre too due to a lack of trigger, at home, the scene is no different. The much-talked about single uniform Goods and Services Tax (GST) seems to have hit a roadblock with states not willing to let go off control on goods they have been taxing so far.

The GST council, headed by the finance minister, Arun Jaitley, will meet next week to trash out the revenue share states have been demanding.

GST is a major reform that will trigger growth. The tax is aimed at amalgamating indirect central and state taxes into a single tax to create a common national market. As of now the taxation is seen as a hindrance to growth with multiple taxations leading to escalating and differential costs of goods and services in the country.

So the government’s ambition of implementing the GST from the new fiscal April 1, 2017 is more than likely to miss the deadline. As per the Constitutional Amendment, the GST needs to be implemented by Sept.15, 2017 even that too is seen distant now.

Jaitley in fact has warned that there would be no taxes if a consensus is not arrived at, which means a loss of tax revenues. However, tax experts deny this and say that each state will continue indulging in levying taxes while the centre will continue with its high service taxes on the masses. The end result would be escalating costs of goods and services, lesser money with the masses even if domestic interest rates would ease.

Talking of interest rates, the domestic markets will begin to discount the US Fed rate decision which is around mid-December as well as the Reserve Bank of India’s (RBI) policy rate on Dec.7.

The RBI’s 5th bi-monthly Monetary Policy will be unveiled on Wednesday. Most are expecting at least a 25 bps cut in key rate from the present 6.25 per cent. This time a rate cut is not seen as a trigger for big investors as much as a possible hike in Fed rate. A hike in Fed rate implies a sustained rally on the dollar versus major currencies. The US bond market is hence seen a safer haven for most FIIs than the growth rate in emerging economies. That should explain why FIIs in India have turned aggressive sellers in most emerging economies.

The Indian Prime Minister, Narendra Modi’s crackdown on higher denomination currency or demonetisation, has made economists lower growth estimate due to severe drop down in consumer spending. The drop in consumer spending is due to limit on cash withdrawals set by the government, which in turn has led to high liquidity with banks that is pressuring down interest rates.

The economy that grew 7.3 per cent in the July-September quarter this year is now seen falling below 5 per cent annually by the end of the fiscal year March31, 2017.

This, economists opine, is largely due to the demonetisation that has left the entire nation’s population cash starved and has adversely hit industries, especially cash-dependent trades and businesses.

For the week ahead, the markets look range-bound, though with a downward bias. Level 8066 needs to be breached for Nifty to dip below the 8000-mark.

THE AUTHOR
IS A BUSINESS ANALYST COVERING
INDIAN MARKETS, BANKING AND ECONOMY

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