Hi!
We had seen that over a month now, the global markets had been dancing to the tune of the US markets and US$, and Indian markets were no exception to it. So, let us understand the position of the US markets from the Dow Jones chart as at the close of Fri 2nd Dec 2016, given below.
From the chart, we see that the daily candles had been moving up continuously, had been above the 10 DMA Red line all along, and have now reached near the upper Bollinger Band. This indicates that hereafter, for some time, the Dow Jones is likely to move sideways, and also likely to remain range bound. This also means, that the likely increase in the interest rates in the US has already been factored in by the markets, and when it actually happens, there shall be no additional impact on those markets.
With this background, now let us see the chart for spot Nifty as on the close of Fri 2nd Dec 2016. On Thu 1st Dec 2016, the spot Nifty made an attempt to come back in the downward slopping channel of the two lack dotted lines, but the lower line acted as a strong resistance and the candle closed below the channel. Then on Fri 2nd Dec 2016, there was a gap down opening, and the candle closed below the 10 DMA Red line.
One must understand the scenario currently existing in India. The thrust on less-cash economy is forcing the citizens to turn to use the available debit/credit cards. Those who had not opted for debit cards, it is now time to get them issued.
We all have been used to the mindset of withdrawing cash and doing the cash purchases, which always suited everyone. But the compulsion of using plastic money, net banking and mobile banking facility, is slowing down the purchases. In my opinion, the cash crunch has been intentionally created for the citizens to learn about the less-cash economy and make use of it.
People in Rural area have been facing a major problem due to absence of bank branches and ATMs in that area, which has led to the demand for having more branches and ATMs in rural area. Once upon a time, a rural citizen used to clean one’s own teeth with his finger by using carbon ash. But today, almost all the villagers use tooth brushes and one or the other toothpaste. Likewise, the Rural area shall slowly move to banking economy, forcefully though.
With most of the transactions now taking through the bank, that there shall be a complete transparency. Any and every transaction could now be traced back. The government shall get the correct data about the earning of all levels of people, based on which the Taxation norms could get set, which shall have a Tax Bonanza for a common man. Almost everyone is likely get benefitted due to reduction in direct taxes like Income Tax and also like Indirect Taxes like GST, which is set to get introduced by 1st Apr 2016.
The current scenario in the India stock markets is the result of confusion created in the minds of a common man, by those, who have been holding black money in piles of cash, which has now become useless. These people are now frustrated and their current behavior is the result of this frustration.
I expect the RBI to come out with reduction in the interest rates, better than anticipated, which shall give a thrust to Indian markets, pushing the pot Nifty back inside the downward sloping channel.
By this time, the Nifty should be above the 10 DMA Red line, and also should be touching the upper Bollinger band, which shall make the Nifty to remain sideways for some time, and consolidate.
This year, the Budget is on 1st Feb 2017. If there is a pre-budget rally, as is seen for most of the earlier years, then the spot Nifty shall be trying to break the upper dotted line of the channel and move above it.
Whatever effect we saw on Dow Jones as Donald Trump got elected in the US, I expect a similar effect on spot Nifty, after the budget is announced on 1st Feb 2017.
My opinion based on my understanding of the markets and the charts, and I could be wrong.
Cheers!
SS