Nifty Fut (Aug):Global Meltdown---Sustained Below 8190, Are We Heading For 7900-7700 Zone ?

Technical View:

NF (LTP:8287; SGX:8172) may open around 8170-8150 on Monday morning as par Friday night closing level of SGX-NF.

Looking the chart, important support of NF should be around 8190 and sustain below that 8150-8135 might be the immediate target. Only consecutive closing below 8135, NF should fall towards 8080-8040 & 8000-7925-7860 zone and sustain below 7860, it may further fall to 7750-7700 area in the near term (bear scenario probability).

On the upside, sustaining above 8190-8220, immediate to short term target will be around 8245-8290 to 8310-8331 & 8362-8382-8405. Further sustaining above 8405, NF may face some hurdle at 8431-8455 zone and consecutive closing above 8455, it may rally towards 8485-8525 & 8555-8570 and 8610-8648-8675-8700 zone in the bullish case probability.

Trading Levels (Positional):

		Gap Up/Dw	(Indicative)
SGX NIFTY	8172	-115
				NF-Aug	LTP			8287
	SL (+/-) 10 POINTS	FROM SLR
	Intraday Swing	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	8210		8245-90	8310-31	8362-82*	8405-55	8485-525	<8190
Weak <	8190		8150-35*	8080-40	8000*	7925-860*	7750-700	>8210
FOR	Conservative	Positional	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	8210		8290	8362*	8455	8525	8675	<8190
Weak <	8190		8135*	8000	7925*	7860	7700	>8210

Rationale:

As we all know, there is some type of "Global Meltdown" going on currently all over the equity market amid China jitters, Yuan devaluation, so called "Currency War", EM currency turmoil and crashing crude oil prices. Adding to the woes, there is some confusion over US real economy growth and it seems that Fed is not so confident to raise rates in Sep or may be even in Dec'15, going by the US disinflation, "China slow down" and tepid EU situation (specially Greece political drama). Truly speaking, market is concerned over both US & China growth, being the two largest economy in the world now. Also, crude oil crash is destroying economic superiority of some of the oil rich countries such as Saudi Arabia, Russia etc and their fiscal situation is in turmoil. Clearly, a balancing act need to be done in the currency devaluation approach to stimulate growth and an equilibrium price for crude oil is also necessary to avoid a contagion effect.

Back to our own story, after complete wash out of monsoon Parliament session, all eyes will be on the special GST Parliament session which will start likely by Aug'30. Hopefully, this time, UPA will not oppose severely as they are (specially Cong) under immense pressure in & outside Parliament to act constructively and help either directly or indirectly (by abstain) to pass the bill in RS which will definitely help the market to pop up, at lest for short time and then actual fine print of the GST will decide next course of market movement. Theoretically, there may be a joint session of parliament to pass all the stalled bills, but practically that may be difficult for NDA, given the political compulsion.

At the end of the day. Cong will also realize that by destructive politics in Parliament, they have nothing to gain except converting itself into a "sign board" political party having no national importance. 

Regarding Land Bill, the Govt is now seems to be in the back foot before Bihar election & for its own political compulsions too and perhaps accepting the UPA version of the same for the time being with state specific issues. But BJP needs to believe in its own reform idea/agenda as far Land Bill is concerned as around 40% of stalled projects are stuck due to this contentious land issue.

Also, at this hour of crisis, Govt is accepting recommendation of Shah Committee for MAT and that means that FPI(s) will be not required to pay any taxes under MAT prior to April'15. The Govt will take similar stand in the SC for the ongoing "Castleton" case which is scheduled to be heard in Sep'15. Though, this was widely expected (as the Govt can't say no to MAT directly because of various legal & political issues here, this is an indirect way to say goodbye to MAT for the FII and that's why the Shah Panel was constituted in the first place), the same may be taken positively by the market and specially by the FPI(s), as they want simple, consistent and predictable policy. They are not here to fight cases in different legal forums.

Then there may be RBI action shortly or after CPI data in Sep and condition is ripe for a rate cut (even @0.50% in one shot) as Rajan may not like to wait till Oct for a Dewali gift to the nation amid this hour of crisis. Now, CPI is low(except Onion!!) and WPI is deep in negative territory, there is normal monsoon and Fed fund rate is indicating less probability of Sep lift off, so, there should not be any excuse for RBI to hold till Oct'15. But weak INR may be a headache for RBI as rate cut may prompt more slide in INR and there will be more selling by FPI(s), specially in bond market. Again, improved inflows in equity market by FPI(s)t due to rate cut should compensate some of the bond market outflows in the short term.

Apart form possible rate cut, immediate liquidity is more important for PSBS as they are under huge stressed assets of around Rs.4 lac cr, thanks to irresponsible lending coupled with economic slowdown amid legacy policy paralysis issues. Although Govt is now helping PSBS by so called "Mission Indradhanush", but that may be too little & too late. Thus immediate CRR/SLR/MSF cut is necessary for PSBS to fund "India Growth" story, when there will be actual economic recovery in H2FY16 as widely expected and demand for corporate loans will increase substantially.

Govt is also trying hard to support our market by bringing in some policy reforms which do not require Parliamentary legislation or RS approval in this hour of crisis, because for them disinvestment is a necessity to meet fiscal deficit and various expenditure, such as creation of infrastructure, funding of stalled projects and we may see institutional support also for an orderly behavior of the market.

But the forthcoming Bihar election will be most important for BJP/NDA to gain some seats in RS. Although there are around 16 RS seats for Bihar, BJP will need much more seats in the coming state elections after Bihar in 2016-18 to gain absolute majority in 243 effective members RS. As par various combinations & permutations, BJP has now 46 seats of its own and around 65-70 seats along with NDA/other political allies against Cong's own 69 and combined oppositions strength of around 132 seats. Thus, even if BJP get 16 RS seats in Bihar (unlikely as there is no visible "Modi Wave" this time, it can get 8-10 seats as par some predictions), it will have to wait till 2019 to have absolute RS majority, but at that time its current tenure will end. So, the best scenario will be effective RS floor co-ordination and specific political party wise management, so that even if Cong do not oblige, other so called "opponent" parties such as TMC(12),SP(15),JDU(12),AIDMK(11),BJD(7),BSP(10),DMK(4), Independent & Others(7) can help directly or indirectly in RS voting as some of them has also some "obligations" towards Govt (CBI cases etc). In that sense, absolute majority/good result in Bihar will reduce such dependency on other "opposition" parties and might bring a change of sentiment about Parliament/RS logjam. Govt's Rs.1.25 lac cr package (gift) for Bihar just before election may help.

That said, ultimately, what it matters is earnings (EPS) and although there was very little expectations in Q1FY16, observing the actual trend, various analysts are downgrading it to 10-12% against 18-20% sequential YOY growth on an average. Basically, this earning downgrade and falling INR spooked the market last week. Going by pure technicals, USD is poised to scale 70-72 level against INR in the near term (if sustained over 66 and not breaking below 64), unless RBI think otherwise and intervene heavily. Fundamentally, if Fed decides to hike rate in Sep, that will make USD more strong against INR, simply for interest rate differential. Hopefully, Fed will not hike in Sep and along that, depressed commodity prices (specially crude oil) will help India in the days ahead. Also "China's pain might be India's gain" for India's "safe heaven" appeal. But falling commodity prices (metals & crude) is also affecting future earning potential of some of our blue chip companies.

Moral Of The Story:

Immediate base of Nifty: 7900-7700 (without any GST/Rate cut hope)

Bounce back will depend on news flow, like MAT/GST/Rate cut/prospect of BJP in Bihar election/Q2FY16 earnings etc and Nifty will bounce back gradually towards the upper supply zone of 8500-8675-8760 depending upon the positive news flow, otherwise it may fall to 7300 zone in the near future.


Valuations As Par BG Metrics (Techno Funda Model)

As par revised earnings estimates by various analysts: (if there is any real economic recovery as widely expected wef H2FY16)

(Under the current market parameters)

Current median valuation of Nifty may be around : 7700

Projected fair valuations might be around: 8350-9150-10300 (FY:16-18)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	LONG TERM	SHORT TERM	MEDIAN VALUE	200-DEMA	10-DEMA
CNXNIFTY	361	2470.22	19.5	7639.51	7706.41	7672.96	8290.67	8436.5

 

CNXNIFTY

425

2720

19.5

8289.08

8361.67

8325.38

8290.67

8436.5

 

CNXNIFTY

510

3050

19.5

9080.24

9159.75

9119.99

8290.67

8436.5

 

CNXNIFTY

650

3510

19.5

10251.06

10340.82

10295.94

8290.67

8436.5

  Technical Charts: