Nifty recovered on positive global cues amid China stimulus

Earlier Nifty stumbled on a subdued report card by HDFC Bank & RIL coupled with FPI regulatory tightening by SEBI

India’s benchmark stock index Nifty closed around 21465.90 Wednesday (24^th January), jumped +1.07% on positive global cues amid Chinese stimulus, upbeat PMIs from Europe/India, and hopes of solid US earnings, soft landing and Fed pivot. In an early Wednesday European session, China’s Central Bank (PBOC) Governor Pan announced that PBOC will reduce the reserve requirement ratio (RRR) for all banks by -50 bps to 10% starting from February 5^th, releasing up to CNY 1T (~$140B) to the market to boost the economic recovery.

The RRR cut announcement followed after just two days when the PBOC disappointed the market by holding rates (LPR) at 3.45% instead of any cut. This would be the lowest RRR level since March 2007 and aligns with the PBOC's ongoing efforts (targeted monetary stimulus) to reinforce an uncertain economic recovery in light of the plummeting stock and real estate markets. The PBOC had previously cut RRR by -25 bps in March and September last year. Additionally, starting January 25^th, the PBOC will lower re-lending and re-discount interest rates by -25 basis points, targeting the rural sector and small businesses. PBOC indicated further targeted monetary stimulus.

On Monday (22^nd January), Chinese Premier Li chaired a cabinet meeting where officials indicated they would take more forceful and effective measures to stabilize stock market confidence. Policymakers are reportedly seeking to deploy about CNY 2T, mainly from offshore accounts of Chinese state-owned enterprises (SOE), as part of a fund to buy mainland shares and support/boost the plummeting stock market.

On Wednesday, Indian market was boosted by metals (Chinese stimulus), media (hopes of consolidation/M&A), PSU Banks, energy, infra, FMCG, Techs/IT (generative AI optimism, surging Nasdaq), Pharma (upbeat report card), automobiles (India becoming World’s 2^nd largest automobile market after China), and realty, while dragged by selected private banks led by ICICI Bank, Axis Bank. Nifty was also dragged by Asian Paints (subdued report card), TCS, and Adani Ports, while supported by HDFC Bank, RIL (bargain hunting after recent steep fall amid subdued report card), INFY, Bharti Airtel, HUL, HCL Tech, SBI, L&T, Tata Steel and ITC.

Nifty tumbled almost -1.54% Wednesday after -0.23% Saturday special session (20^th January) on the subdued report card by RIL, HDFC Bank, HUL and Asian Paints coupled with a report of regulatory tightening on FPIs.

As per reports, SEBI may impose tightened ultimate beneficial ownership (UBO) norms for FPIs, from 1^st February despite pressure from foreign banks and a section of offshore fund managers to ease the rules ahead of the deadline. As per an estimate, there could be a sell-off in Indian stocks in the range of Rs 1.50-2.00T over the next six months by FPI/funds unable to comply with the norms. This is related to the Minimum Public Shareholding (MPS) requirement and a politically sensitive issue involving the Adani group and a recent SC directive.

India’s main opposition political party INC alleged after SEBI put a consultation paper in June’23: "The SEBI Consultation Paper put out yesterday proposes to tighten the very rules it was forced to dilute in 2018 to allow foreign portfolio investors to invest in Indian companies without having to reveal their FULL ownership details. This was done to benefit Modani. We hope the Consultation paper is not an eyewash exercise and will cover investments made earlier. This seems to be a response to the findings of the Supreme Court Expert Committee. It also vindicates the Hum Adanike Hain Kaun-HAHK series of 100 questions that we asked of the PM — which he remains totally silent on”.

In June’23 the SEBI said: "Such concentrated investments raise concern and possibility that promoters of such corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of maintaining Minimum Public Shareholding."

In 2018, the Prevention of Money Laundering (PML) Act revised the definition of the ultimate beneficial owner (UBO), considering the beneficial owner as the ultimate beneficial owner. Subsequently, in 2019, the SEBI removed the requirement for mandatory disclosure of ultimate beneficial owners. At that time, foreign entities were only obligated to provide details of the senior managing official and were not required to disclose their stakeholders or contributors to the SEBI.

The PML Rules establish thresholds based on ownership or entitlement to capital or profits (economic interest) to determine the beneficial owner of legal entities. These thresholds are set at 10% for companies and trusts, and 15% for partnerships. Additionally, the rules specify that the beneficial owner includes natural persons who exercise ultimate effective control over a legal entity or arrangement.

The Congress party (INC) has been demanding a joint parliamentary committee (JPC) investigation into the Adani matter following allegations made by Hindenburg Research in its January 24 report. The report accused the Adani group of fraud, stock manipulation, and money laundering. Despite the Adani group's denial of all allegations, the SC has formed an expert committee to evaluate the existing regulatory framework. Additionally, the court has directed the SEBI to expedite its investigation into the allegations.

The expert committee headed by former SC judge AM Sapre found no regulatory failure during the sharp rise in prices of Adani group companies between March 2000 and December 2022 and their dramatic meltdown after January 24. But the report said: "While there was no adverse observation with respect to Adani scrips in the cash segment, suspicious trading has been observed on the part of six entities. These are four FPIs, one body corporate and one individual”.

On Friday (19^th January), Nifty snapped a 3-day losing streak on positive global/US cues and a Fitch rating report affirming India’s rating at ‘BBB-‘ with a stable outlook. India’s ratings/outlook was supported by robust economic growth, controlled/stable core inflation, political/policy/macro/currency stability and sound external finances, while dragged by weak public finance/high deficits, debt interest/revenue ratio (when compared to peers).

On Friday Nifty was supported by Bharti Airtel (hopes of telecom tariff hikes in 2024), ICICI Bank (hopes of upbeat report card), INFY (tech/GAI optimism), LT (Bullet train corridor order/Mumbai-AH), ITC (stake buy by FPIs), Axis Bank, NTPC, TCS, ONGC and M&M, while dragged by HDFC Bank (subdued report card), Indusind Bank (subdued report card), Kotak Bank, RIL, SBIN, Adani Ports, and Divis Lab.

Overall, Nifty slumped almost -1.17% for the last week on fading hopes of Fed/RBI pivot and subdued HDFC Bank earnings. Nifty scaled a new life time high around 22123.25 in the opening session trade Tuesday (16^th January) on tech earnings optimism after an upbeat report card by IT/tech majors INFY, TCS, Wipro, and HCL Tech. Overall, Nifty buoyed on hopes of blockbuster earnings/report cards, Fed/RBI pivot/rate cuts in 2024, and Modinomics optimism.

For the week, Nifty was boosted by Infy, Bharti Airtel, LT, ONGC, TCS, TechM, ITC, Ultratech Cement, Titan, Apollo Hospital, Wipro, and HCL tech, while dragged by HDFC Bank, Kotak Bank, Bajaj Finance, Indusind Bank, LTIM, Adani Enterprises, Asian Paints, and Adani Ports. Overall, the Indian market was boosted by techs/IT, PSU Banks, Infra, FMCG, Pharma and energy to some extent, while dragged by private banks, media, metals, realty and automobiles.

Overall, for the last 7-trading days, Nifty lost almost -0.55%; Nifty was boosted by positive global/US cues amid tech/AI chips and Fed/RBI pivot optimism. Earlier Wall Street Futures were under stress on fading hopes of early and deeper Fed rate cuts amid hotter-than-expected economic data (core inflation and retail sales).

Fed may not go for any rate cuts in H1CY24. Also, recent comments by various Fed policymakers may be indicating that as a logical next step, the Fed may go for QT tapering from Jan/Feb’24 and end the QT ($95B/M) by June’24 in a systematic way without disrupting the market. Then Fed may go for rate cuts in H2CY24; probably from July’24 with 75-100 bps rate cuts depending upon the actual core inflation trajectory for H1CY24 and its outlook for the rest of the year. Although theoretically, Fed may go for rate cuts even under QT; practically Fed may prefer to end the QT first, which is sucking liquidity or helping in tighter financial conditions (higher bond yields), and then go for rate cuts, which will help in pumping more liquidity or helping easy financial conditions.

Technical trading levels: Nifty Future

Whatever the narrative, technically Nifty Future (21488) now has to sustain over 21600 for a further rally to 21800*/22100-22200/22300* and further 22450-22550*/22675-22850/23025 and 23260-23575 levels in the coming days; otherwise sustaining below 21550/500, may again fall to 21400-21300, and further 21000*/20900-20725/20575-20350. And sustaining below 20350, Nifty Future may again fall to 20150/20000-19900/19650 and 19400/19150-18850/18700 in the coming days.

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