SGX Nifty Stumbled on Lingering Uncertainty over U.S. Debt Limit Extension

  • Market Overview

India’s benchmark stock index Nifty (NSEI) closed around 17790.35 Thursday, jumped almost +0.82% on positive global cues amid signs of US debt limit resolution, US-China trade truce, and as the global price of oil slips from a multi-year high of almost $80. Nifty slumped around -0.99% Wednesday on weak global cues as bond yields gone higher amid the concern of stagflation as energy prices skyrocketed. Both Natural Gas (NG) and crude oil made multi-years high around 79.76 and 6.325 amid higher demand (even before winter) and supply bottlenecks (on them too fast transition to the green energy initiative!).

Continental European electricity prices hitting record highs, almost +550% over average 2010-20 levels. European policymakers are scrambling for some solution as higher inflation is causing public unrest. But both NG and oil stumbled early U.S. session Wednesday after Russian President Putin offered help to stabilize European gas prices in an effort for Russian supremacy over the energy market, saying that the gas price crisis shows European authorities made mistakes for the inordinate delay in the certification of the Nord Stream 2 pipeline, absolutely critical for Europe's energy needs.

The EU/Europe is heavily dependent on Russia for its energy (NG) needs as it lacks sufficient nuclear and coal-powered energy systems and has inadequate NG/oil reserves/production. The EU is now also considering being a single buyer for all its energy needs for all the member states. Russia, U.S., and Gulf countries are now top producers of energies (oil & gas).

Also, the diplomatic spat between China and Australia is affecting supplies of coal to the world’s largest user of fossil fuel and creating an energy crisis. Any such energy crisis is also affecting manufacturing in China, the global factory and causing more supply disruption, causing inflation. Even India may now suffer from such an energy crisis amid the shortage of thermal coal in various thermal electricity plants due to local supply shortages and also higher global prices. As India imports, almost 85% of its domestic oil requirement, oil is bound to be higher domestically. Also due to the very high tax component, prices of transportation fuel like diesel, petrol are rising abnormally, causing widespread inflation.

Dow Jones 30 Futures eventually jumped over +900 points from Wednesday low to early Thursday U.S. session on signs of US debt limit resolution and the US-China trade truce. Subsequently, SGX Nifty also made a high around 17888 from NSE closing levels 17820. But both Dow and Nifty 50 Futures slips from the U.S. debt limit resolution high as the U.S. debt limit saga is not over yet. There are reports that the U.S. debt limit extension vote in the Senate may be delayed further as GOP disappointment with Republican Leader McConnell deal could delay the vote. Senate Republicans are taking a close look at the debt-limit deal announced Thursday morning between Senate Majority (ruling party) Leader Schumer (Democrats) and Minority (opposition) Leader McConnell (Republicans) and a group of Democrat conservatives are complaining to their colleague that they gave Democrats an easy way out.

On Thursday, the Indian market was boosted by realty, automobiles (fiscal stimulus of road tax concession for new vehicles bought under scrappage policy), techs/IT exporters (higher USD and hopes of blockbuster report card), banks & financials (RBI may signal some hike in reverse repo rate, positive for banks as they will get a higher risk-free return from the central bank on excess deposits), pharma, metals, infra, while dragged by energy (lower oil price).

Nifty was boosted by Titan (NS: TITN ) (report of upbeat festival sales), ICICI Bank (NS: ICBK ), TCS (NS: TCS ), Tata Motors (NS: TAMO ), Infosys Ltd (NS: INFY ), M&M (NS: MAHM ), Reliance Industries Ltd (NS: RELI ) (launch of 7-Eleven retail stores in India), Maruti (NS: MRTI ), Asian Paints (NS: ASPN ) (lower oil price positive for the bottom line), and HCL Tech (NS: HCLT ). Nifty was dragged by HDFC (NS: HDFC ), ONGC (NS: ONGC ) (lower oil price), and HDFC Bank (NS: HDBK ) (deleveraging issues as it formally shelves IPO plan for HDB Financial and looking for the strategic investor).

Looking ahead, technically, Nifty Future has to sustain over 17950 levels for 18200+ by Diwali; otherwise, it may correct to 17550 and below levels. RBI may opt for a less dovish hold with a signal/action for a 0.15% hike in the reverse repo rate as a first step towards tightening to control uncontrolled inflation. RBI may also further hike the reverse repo rate by +0.25% to 3.75% in Dec’21 meeting (against repo rate +4.00%) to discourage banks to offer easy lending to eligible borrowers to tighten liquidity and bring down inflation, hovering around +6.00% consistently, much above RBI target of +4.00%.

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