Nifty Finished A Range Bound Session With Negative Bias Amid Tepid Global Cues Ahead Of Budget; But Supported By Idea & Other Telecom Stocks On Hopes Of Consolidation

Market Wrap: 30/01/2017 (19:00)

Looking at the chart, Nifty Fut (Feb @8658) has to sustain over 8685-8705 area for further rally towards 8745-8795 & 8855-8895 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8665-8635 zone, NF may fall towards 8585-8505 & 8455-8380/8315 area in the near term (under bear case scenario).

Ahead of budget day after tomorrow, all eyes will be on the Economic Survey to be released by the Govt tomorrow. Market may also watch keenly Auto sales & MFG PMI data for Jan, which will be released on the budget day (1^st Feb).

Nifty Fut (Feb) today closed around 8658 (-13 points) & snapped four days rally in an extremely range bound session after making an opening minutes low of 8636 and day high of 8682. Market was primarily supported today by telecom stocks after merger buzz of Idea & Vodafone. Subsequently, Idea rallied (+25%), Bharti Airtel (+6.76%), RIL/R-Jio (+1.94%) & Grasim also rallied by (+4.38%), being part of AB group (Idea). 

But, Idea later said that talks with Vodafone are still at very preliminary stage and they are also exploiting merger with some local player (Bharti Airtel?) for better synergy. Since late Aug’16, there was buzz of merger between Vodafone & Idea for the much awaited big consolidation to counter the aggressive competition from R-JIO; but that time after initial buzz, both Vodafone & Idea denied such probability. Recently, Idea postponed its scheduled Q3FY17 result day on 23^rd Jan’17 and that ignited again the merger buzz. Today, both Vodafone & Idea confirmed about discussions for possible merger. 

For Vodafone, which was exploiting an IPO for its Indian operation for the last few years, merger with Idea may be a back door entry in the Indian capital market. Idea has strong network in the rural area, especially in South India, whereas Vodafone has strong urban network. 

In this game of consolidation & cut throat competition, Indian telecom market now may be only suitable for player having very deep pocket and thus Vodafone, R-JIO & Airtel will be the main players of the sector. But, this Idea merger (either with Vodafone or with Airtel) may be the last major consolidation in the industry and being a huge merger in terms of telecom subscribers & spectrum, regulatory & CCI approval may be a challenge in the coming days.

Infratel may be a loser for this Idea merger talk as its towers may not be shared with both Idea & Vodafone after merger and thus corrected by 7.12% in today’s trade. Also, there was some confusion regarding its much awaited tower stakes sales talks, going on for months. Incidentally, Bharti Airtel is also exploring option to raise funds to counter R-JIO disruptions.

Banks were under pressure today and Bank Nifty corrected by 0.77% ahead of ICICI Bank result. Today’s HDFC result also showed incremental pressure on the stressed assets, although overall Q3 numbers were decent. L&T was also off the high after tepid Q4FY17 guidance. Almost 70% of the Nifty constituents were in red today and basically, telecoms saved the day from some deeper correction ahead of budget.

Global sentiment was tepid today after Trump’s executive order fiasco over immigration ban for seven selected Muslim countries. After Trump took charge of the Oval office on 20^th Jan, it seems that there is some disconnect between his administration & the invertors/market. Basically, market was looking for fiscal spending, tax cuts & deregulation narratives from Trump after assuming the White House, instead Trump is concentrating on trade barriers, immigration & “America First” issues. As a result, there may be huge domestic & international backlash/protests and even some of the members of Trump’s own party (RNC) may go against him, apart from the oppositions (DNC), which may not extend co-operation. 

Thus, US political risk for Trump’s unusual way of administration may be a big headwind for passage of the fiscal/infra spending bill and tax cuts in the days ahead. In such scenario, the whole concept of “Trumponomics” may be in question and thus USD/US bond yields are going down across the board.

Also, the way Trump is going now, he may soon find himself as “alone” and “America” may be “isolated” in the global economy itself.  IT counters were in pressure today after this anti-immigration stance from Trump.

 SGX-NF