ALL EYES ON FM

ALL EYES ON FM

WORLD MARKETS

US indices nosedived 1.6%-2.1%,  wiping out Dow and S & P 500's gain for January, on increasing worries about the potential economic impact of China’s fast-spreading coronavirus.

The virus has now spread to at least 18 other countries. U.S. declared the coronavirus a public health emergency within the country. Delta, American and United suspended all flights between China and the U.S. China’s National Health Commission confirmed that there have been 9,692 confirmed cases of the coronavirus, with 213 deaths.

Caterpillar shares fell 3% after the industrial giant’s CEO warned about “global economic uncertainty” in the company’s latest quarterly earnings. On the positive side, Amazon shares surged 7.4% after the company posted a quarterly profit and revenue that easily beat analyst expectations.

Brent crude fell 21 cents to $58.08 per barrel while WTI fell 58 cents, or 1.1%, to settle at $51.56. WTI posted a fourth straight week of losses, and it was the contract’s worst month since May.

Earlier, China’s official manufacturing PMI for January came in at 50, meeting estimates.

Main European markets slipped 1.1%-1.3% after the first two cases of the coronavirus were confirmed in the U.K. Euro area GDP rose 0.1% q-o-q and 1.0% y-o-y in the fourth quarter of 2019,below estimates of 0.2% and 1.1% respectively.

U.K. officially left the European Union at 11:00 p.m. London time, ending a 3 1/2 year exit process, but beginning an 11-month transitional period, during which time British and European leaders will attempt to hash out a new trade agreement.

For the week, US indices fell 1.8-2.5%. The S&P 500 closed marginally lower for January, snapping a four-month winning streak. The Dow also had its first monthly loss since August. The Nasdaq posted a 2% gain in January, its fifth-straight monthly advance.

AT HOME

Sensex and Nifty ended with cuts of 0.5% and 0.6% respectively after a choppy pre-budget session to close at the lowest level since 6th January 2020 and 11th December 2019 respectively. Sensex settled at 40723, down 190 points while Nifty lost 73 points to finish at 11962. NSE mid-cap index fell 0.6% while small-cap ended flat.  BSE Oil & GAS index fell 2.6%, becoming top loser among the sectoral indices, followed by 2.3% lower Energy and Metal indices. Telecom index was the top gainer, up 1.2%, followed by 1.1% higher Realty and Consumer Durables indices.

FIIs net sold stocks, index futures and stock futures worth Rs 4179 cr, 2283 cr and 1259 cr respectively. DIIs were net buyers to the tune of Rs 3816 cr.

Rupee appreciated 14 paise to end at 71.34/$.

For the month of January, Sensex and Nifty fell 1.3% and 1.7% respectively, breaking four-month winning streak.

Economic Survey 2019-20 tabled by Finance Minister Nirmala Sitharaman on today projected GDP growth for FY21 at 6-6.5% while retaining the growth numbers for the current fiscal at 5%. The survey stressed on the need to relax fiscal deficit for the current fiscal to revive growth and also called for more reforms for making it easier to do business in the country.

OUTLOOK

The big event to watch out today would be the Union Budget.

Finance Minister has tough task of reviving growth without compromising on fiscal deficit too much at the time when tax revenues have been below estimates.

It is widely expected that the Revised fiscal deficit for the current fiscal would be increased to 3.7%-3.8% from the budget estimate of 3.3%. For the next fiscal, a figure of 3.5% is what market is prepared for. Market will also watch out for assumption of GDP growth and tax revenue growth numbers which are used to arrive at fiscal deficit number.

In this context, market will also watch out for the borrowing figure. For next fiscal, market is prepared for a Gross borrowing figure of 7.8-8 lakh cr. Anything above 3.5% fiscal deficit and 8 lakh cr borrowing would not be taken positively.

Stock market will most keenly watch out for any announcement on LTCG. It is expected that the budget would make gains made on the securities held for more than two/three years, tax free. If that happens, market would take it very positively. The other big change expected is removal of dividend distribution tax.

Market is also expecting some changes in personal income tax rates/increase in the exemption limit/increase in 80C limit to boost demand. Expect consumption related stocks to jump if this happens.

The budget is expected to raise infrastructure spending to boost the economy. To give a boost to rural demand, allocation to schemes like PMKY and MGNREGA is expected to go up. Measures to boost export are also expected. Sops for housing sector to clear the unsold inventory are also expected.

In yesterday's report we had said that 12010, the bottom made Thursday, which coincides with the upward sloping trendline adjoining recent bottoms on the daily chart, continued to be immediate support upon breach of which, 11890, where 20-week moving average was placed, would be the next important support.

Nifty broke 12010 support and plunged all the way to 11945 before closing at 11962 and is set to open lower by about 40 points as indicated by SGX Nifty.

20-week moving average, placed around 11890, continues to be important immediate support to eye. If that breaks, 11832, the low made in December 2019, would be the next support. In the event of 11832 also giving way, be prepared for 11650, where 34-week moving average is placed.

12100 is the immediate hurdle on the way up above which 12190, where 34-DMA is placed, would be the next hurdle. If the benchmark is able to take out 12190, 12270, the 67% retracement level of the recent 12430-11945 fall, would be the next target/hurdle.