Nifty Sheds Another 90 Points Amid Tepid Global Cues Coupled With Poor Earnings and Mistry's Allegations Of Various TATA "Legacy Hot-Spots"

Market Wrap: 26/10/2016 (18:30)

Nifty Fut (Oct) today closed around 8611 (-1%), after trading choppy most of the days and in the process, made an opening high of 8669 and late day session low of 8599 (the opening minute low of 8585 may be an act of fat finger).

Technically, for tomorrow (26/10/2016), immediate support may be around 8560-8530* and sustaining below that, NF may expire around 8500/8465*-8430/8405 and further towards 8380*-8315 area in the worst case scenario.

On the other side, for any strength, NF need to stay above 8640-8670* area for an expiry of around 8690/8705*-8750/8775 and further towards 8800-8840* zone in the extreme bullish case scenario.

Considering the overall structure of the technical chart as of now, probability of NF expiry may be more around 8500 area for tomorrow.

Indian market opened today 35 points lower around 8662 in NF following tepid global cues after overnight/morning fall in US stock Fut (-0.50%) and subsequent weak Asian market sentiment and fall further.

Overnight US market was weak following mixed earnings and economic data. US consumer sentiment was weak, apparently for lack of suitable job openings just ahead of election. Result as well as guidance given by Apple was tepid and that's also dented the early Asian sentiment.

Overall, recent sets of good economic data in EZ/Germany, coupled with some hawkish script by BOE yesterday put the USD in some kind of pressure. Also, as par some reports, approval rating gap between Clinton & Trump is again narrowing with US election just two weeks away.

But, despite dip in US consumer sentiment in yesterday's data, overall incoming US economic data including the consumer sentiment itself is well above Fed's red line on an average and FFR is now indicating almost 75% probability of Dec'16 rate hike.

Yesterday, dollar index briefly breached 99 and then some profit booking may happen with US yields falling.

Crude oil slipped to around $49 amid various squabbling by OPEC production cut/freeze and a private report shows sudden build in inventories, especially gasoline and more Nigerian supply is coming to the oil market after some geo-political stability there.

Also, better than expected Australian CPI data and an apparent "Soft Brexit" stance taken by British PM has made the USD lower and dampened the sentiment of Asian market, because of strong Yen.

A buzz was also there that BOJ may abandon the quantum target of QE (Yen 80 bln bond purchase) to steepen the JGB yield curve, which also made the JPY stronger in the early Asian/EU session.

There was also some report that the ailing Italian Bank, Monte Paschi scrip was down by nearly 10% for some restructuring issues and trading halted, which caused the global sentiment as well as the Indian market more gloomy.

There was also a report that London real estate prices may fall by around 6% next year because of Brexit uncertainty and along with that the present BOE Gov's (Carney) confusion over continuation for the job beyond 2018 has made the global market more unstable.

As par some reports, a real Brexit can cause almost $102 bln deficit in UK's public finance over the next five years and GBP can depreciate by another 10% simply on the notion of current A/C imbalances, which made the FTSE/EU market lower.

Among all these global chaos, Indian market sentiment was further deteriorated after string of tepid earnings (either below or inline expected with no big surprise) & guidance from several corporate, especially some banks (Axis & Canara), where there are significant increase in stressed assets.

Notably, HDFC result was good/above expectation, as it was able to sell significant NPL/NPA to ARC.

Some analysts do also believe that on the back of falling bond prices (G-SEC), trading gains for the Indian banks may be muted in the coming days. For the last few years, treasury gains were an effective way for the Indian Banks to compensate for the NPA provision losses. 

Also, as banks were unable to transmit RBI repo rate cuts or even benefit of bond yields to its corporate borrowers by lowering bank lending rate (MCLR) correspondingly, corporate borrowers are increasingly shunning Indian banks for funding and going to the bond market for its finances. Thus, going forward, growth in business/corporate loan savvy banks may be tepid, especially for the PSBS & some selected Pvt Banks (Axis/ICICI/Indusind). Also, PSBS may face incremental pressure on Pension liabilities and together all these news caused the BNF tumbled by around 1.75%.

Thus Indian banks, especially PSBS may be now on the “House of Cards” and the pain of twin balance sheet may not be over yet, despite some early signs of “green shoots”.

Market sentiment was also affected in the last half an hour today, especially for the Tata group of shares after reports of a Mistry's letter addressing the Tata Sons board came in the lime light.

Mistry actually tried to defend his position by stating that various over leveraged Tata groups are in the "Legacy Hot Spots", specially Tata Steel-UK/Corus, Tata Motors-Nano project, Various hotels (Indian Hotels), Tata Com, Air Asia Airlines etc, just because of Rata Tata's passion.

It’s very clear that overall morale of key people may be affected further for this "war of words" between Tata & Mistry and the board room battle may ultimately go to court room, which may further damage the brand "TATA" and investors may not be quite amused. 

As par Mistry, Tata group may face the risk of nearly $18 bln in write downs in the months ahead.

Deleveraging effort by Mistry was one of the prime reason for expensive valuation premium enjoyed by various Tata cos in the recent past and any deviation from that may cause significant corrections for those cos.

Also, confusion over various (multiple) GST rates and cess may be casting some doubts about the effectiveness of the GST itself, if implemented in a hurry by April'2017 and that is also negative for the market sentiment.

As valuation is already high on the back of "expected" super growth in earnings by FY: 17-18 or even by FY-19, any below expected or even in line with expectation Q2 result is resulting significant selling pressure in those scrips.

Only those scrips are rallying (although briefly), which has reported "well above expectation" earnings as of now.

Overall, watch the level of SPF (LTP: 2131), which may touch 2105 level, if sustained below 2120 and in that scenario, we may have gap down opening tomorrow as well in Nifty around 5560 level itself.

 

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