Pre Market Report 13-Feb-2025

Key Concepts:

• US Inflation Data Impact
• Direct Tax Code (DTC) Implications for NRIs and FPAs
• FII Selling Pressure
• Domestic Institutional Support
• Midcap and Small Cap Index Performance
• ADR Performance
• Nifty Expiry Day Volatility
• Divergence between US and Indian Markets

1. US Market Performance and Inflation Data:

• US markets initially fell due to higher-than-expected inflation data.
• S&P 500 dropped over 1% but recovered most losses by the end of the day.
• NASDAQ closed higher, while Dow Jones Industrial Average was down due to its equal-weighted nature and underperformance of a few stocks.

2. GIF Nifty and Indian Market Opening:

• Despite positive performance in most Asian markets, GIF Nifty indicated a flat opening for the Indian market.
• The speaker expresses a sentiment that the Indian market is not performing well regardless of global market trends.

3. Direct Tax Code (DTC) and its Implications:

• The Direct Tax Code (DTC) is expected to be tabled in Parliament.
• Reports suggest the DTC may introduce complex regulations, especially for Non-Resident Indians (NRIs).
• NRIs might be required to declare all foreign bank accounts and assets, potentially leading to scrutiny of income sources.
• The speaker suggests this could deter NRIs and possibly lead some to give up Indian citizenship.
• The speaker mentions that Indians are the number one buyers of properties launched in Dubai.
• The speaker also anticipates increased scrutiny for Foreign Portfolio Investors (FPIs), including those suspected of being "fake FPIs."

4. FII Selling Pressure and Domestic Institutional Support:

• Foreign Institutional Investors (FIIs) are consistently selling, with sales exceeding ₹5,000 crores daily.
• In the last four to five months, FIIs have sold over ₹3 lakh crores worth of assets.
• The speaker questions the sustainability of domestic institutions supporting the market if FII selling continues.
• Domestic institutions can maintain support as long as retail investors continue to invest in mutual funds.
• The speaker warns that the market could face severe selling pressure if retail investment declines.

5. Midcap and Small Cap Index Performance:

• Midcap and small cap indices have fallen approximately 10% in the three trading sessions (Monday, Tuesday, Wednesday).
• This indicates a concerning trend in the broader market.

6. ADR Performance:

• Major Indian ADRs (ICICI Bank, HDFC Bank, and Infosys) opened in green but closed in red.
• This suggests negative sentiment towards Indian equities even in the US market.

7. Nifty Outlook and Expiry Day Volatility:

• Aggressive call writing suggests a limited upside for Nifty.
• The speaker anticipates Nifty settling between 23,000 and 23,300.
• The market's reaction will depend on the finer details of the DTC bill.
• The speaker advises caution and suggests using intraday rallies to reduce long positions.
• The speaker highlights that Nifty has fallen for six consecutive trading sessions and could potentially close in red for the seventh straight day, a record in 2024.
• The speaker also notes that the market might close in red for the fifth straight month, a rare occurrence last seen in 1994 or 1995.
• The speaker emphasizes the potential for high volatility on expiry day due to premium fluctuations.

8. Result Season and Market Divergence:

• The earnings season is nearing its end, with midcap and small cap companies expected to declare results soon.
• The speaker points out a divergence between the strong performance of the US market and the poor performance of the Indian market.
• The speaker expects this divergence to continue for some time.

9. Notable Quotes:

• "So what will happen, you know, many NRIs will be scared and then, you know, so they might even consider giving up the Indian citizenship."
• "...any intraday rally it is time to cut your long positions it is definitely not time to add your long position..."

10. Technical Terms:

• DTC (Direct Tax Code): A proposed law aimed at simplifying direct tax laws in India.
• NRIs (Non-Resident Indians): Indian citizens residing outside India.
• FPAs (Foreign Portfolio Investors): Investors who invest in the financial assets of a country.
• ADR (American Depositary Receipt): A certificate representing ownership of shares in a foreign company that trades on U.S. stock exchanges.
• GIF Nifty: Nifty futures traded on the NSE IX exchange.

11. Synthesis/Conclusion:

The speaker expresses a bearish outlook on the Indian stock market, citing concerns about the potential impact of the DTC on NRIs and FPAs, continuous selling pressure from FIIs, and the divergence between the Indian and US markets. The speaker advises caution and suggests reducing long positions during intraday rallies, especially given the expected volatility on expiry day. The speaker believes that the Indian market's underperformance is likely to persist for some time.