Unified India, one tax: Market may not like it in the near term

Markets opened with nervousness on news of ‘cleanup PSU banks’ move that requires higher provisions in 12 large insolvency accounts, which are being readied to be sent to insolvency courts.

But midway through the week, US markets experienced a seesaw swing, which led to loss of bull’s power in the Nifty50 by the close of the week. In such cautious times, IPOs had dull listings, sending the market into a tizzy. Incidentally, Trai has now sent recommendations to the government to ease the stress on the telecom sector, but Mr Market had somehow sensed such an eventuality way back in December 2016 when the entire sector was crying due to free Reliance Jio offer, which led to deep wounds in the telecom firms, which was a so-called ideal buying opportunity for accumulating the stocks.

The price of the Bharti Airtel stock has since then appreciated by a massive 35 per cent against all conceivable odds compared with a 20 per cent rise in the Nifty50 index.

The wisdom ‘when everyone is fearful (selling) it is the time to buy and vice versa is so difficult to follow. But time and again the rule has stood the test of time even in a so-called worst sector like telecom.

Events of the Week:
India attained freedom from tax corruptions and pilferages after 70 years. As GST kicked in from the midnight of June 30, 2017, there are some winsome and some losses for the consumer, but one thing is certain, the government will be the biggest beneficiary as incremental revenues will flow to it due to reduction in tax evasion and pilferage and increase in tax compliance.
This will potentially disrupt many businesses and professions, which will lead to lower consumption and growth in the economy in the near term.

Technical Outlook
The Nifty50 has made a large weekly bearish candle on the charts, but a small hammer-like body on the daily chart on Friday indicated that a short bounce is expected, after which the downfall should resume.

There is divergence between Nifty50 and Nifty Midcap indices since last few weeks, which does not augur well for the bulls in the short term. The time cycle of the previous bull market and the current rally incidentally are coinciding, which supports a strong base case that a longer and deeper correction will set in. Short-term traders should exit their long positions and may initiate shorts on rise with the 9,620 level as stop loss. Medium- to long-term investors can consider booking profits.


Expectations for the Week
“Change is hard at first, messy in the middle and gorgeous in the end,” - Robin Sharma.

India is entering a new era of indirect taxation, which looks great in theory, but will be very difficult to implement in the near term given the massive population, out of whom a good number is not tech savvy. In the medium-term, therefore, there will be a slowdown in spending and consumption. Many sectors will see disruptions and change in demand and supply patterns.

Markets do not like uncertainty arising out of such epic changes and, thus, is expected to remain in corrective phase. The domestic market will react to stock-specific news flow in the near term with a downward bias. No new investment should be done at the current juncture.
The Nifty50 closed the week at 9,520, down 0.56 per cent for the week.