Nifty Closed By Another 20 Points Higher Helped By Fall In USD, Excellent Show By BJP In BMC/MH Municipal Polls And Rally In Telecoms & IT; But Dragged By RIL & Some Other Profit Bookings & Failed To Hold The One Year High

Market Wrap: 23/02/2017 (19:00)

Nifty closed the Feb Exp series almost 4% higher helped by some weakness in USD, a fiscally prudent yet no populist budget without any capital market tax reform from the Govt; better than expected Q3FY17 earnings despite demonetization blues, a hawkish RBI ensuring stability of INR & Indian bond yields.

What’s next for March ?

Looking at the chart, Nifty Fut (March @8957) has to sustain over 9035 area for further rally towards 9075-9125 & 9195-9275 and further towards 9350-9550 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8995 zone, NF may fall towards 8955-8895 & 8840-8775 and further towards 8725/8695-8575 area in the near term (under bear case scenario).

Similarly, BNF (LTP: 20878) has to sustain over 21150 area for further rally towards 21350-21500 & 21750-21950 and further towards 22300-22650 area in the near term (under bullish case scenario).

On the other side, sustaining below 21100 zone, BNF may fall towards 20850-20700 & 20600-20450 & 20150-19900 and further towards 19600-19250 area in the near term (under bear case scenario).

Nifty Fut (March) today closed around 8957 (+0.10%) after making an opening minutes high of 9018.90 and day low of 8935.75; the opening high of 9018.90 may be an act of fat finger and actual day high might be around 8999. Indian market today opened in almost flat following mixed Global/Asian cues. FOMC minutes were on the dovish side and although various Fed members are talking unusually hawkish to convince the market for an imminent rate hike, implied probability of FFR is still around 20-35% for March; too low for an Fed hike.

FOMC members are basically not too much concerned about any surging inflation and thus confident to stay above the curve in the coming days without any hiking & depending upon the progress of US economy and actual trajectory of “Trumponomics” may act only in May or Sep’17 in H1CY17 (as these meetings will be accompanied by a scheduled press conference). But, again Trump administration may not be in a position to divulge its tax cut plans/reforms and fiscal spending package before Aug’17 and in that scenario, there may also be very small probability of a Sep’17 hike by Fed, irrespective of US economic data. As Trump & Co is now against a stronger USD, eventually, Fed may only act in Dec’17 by its usual annual increment of 0.25% per year.

As a result of this, USD/US bond yields are falling across the board and a weaker USD is good for EM including Indian market. Thus, despite EU political risks, ECB and also BOJ are talking some hawkish script to help USD for some devaluation in order to “cooperate” with Trump, who is accusing every nation from China to Japan & EU for FX manipulation against interest of America. This may be an unofficial central bank coordinated movement to weaken the USD by some extent for a level playing field for US and in the interest of overall globalization stability. We may see less “Trumpomania” in the coming days as USD will lose some strength to the satisfaction of Trump!!

Besides, Trump’s weak USD policy, Indian market is also being supported by various recent M&A deal. Bharti Airtel today announced acquisition of Telenor and the scrip gave an opening rally of almost 11%, helping the Nifty immensely. But, subsequently concern of capex, huge balance sheet debt and intense competition from the new incumbent (R-Jio) has made the scrip to shed the intra gain and it closed just 1.4% higher. Also RIL today corrected by a decent 2% after yesterday’s dream rally of 11% and in the process Nifty also closed well off the day/one year high.

Idea was another scrip (+6.22%), which also helped the market by some extent today amid reports that merger process with Vodafone is at very advance stage and one PE/strategic investor (Soft Bank) may also buy around 20% stake of the combined entity to reduce debt and help operational expenditure. But, later Soft Bank has also denied such news.

Technically, Idea (CMP: 120) has to sustain over 123-128 area for further rally towards 140-160 zone; otherwise it may come down to 105-98 area in the near term.

IT scrips (Infy/TCS/HCL/Wipro) also helped the market today as there was some report that Infy will consider a substantial buy back of its shares in April’17 in line with TCS.

Indian market sentiment was further boosted today after excellent show by BJP in BMC & other MH municipal polls, where MSN was able to give some fight and INC is actually washed out. Though, a municipal poll may have little relevance to the national politics and bigger issues, this time it was different in the backdrop of demonetization politics. It seems that urban voter class is more or less with NAMO in his “war against black money/corruption” and also for a clean political party & administration. If this trend is visible in the ongoing state elections, then by 10-13^th March, Nifty may further rally towards life time high around 9200 or beyond that (9275-9350 in NF) on the back of NAMO’s increasing popularity graph.

But, any disappointment from the state polls for BJP/NAMO, may also make the market very fragile and in that scenario, Nifty may correct up to 8695-8575 area (rural voters having very difficult times in the demonetization period and subsequent economic disruptions, specially for the unorganized sector and they may not be very pleased with BJP despite rich/poor politics & NAMO’s leadership appeal; UP may be very close fight this time and Akhilesh Yadav is also very popular there).

Apart from state election outcome, market will also watch closely progress of GST and various monthly macro data in the coming week (Auto sales/PMI). Also, any hurried launch of GST with so much regulations and complexities may also be another disruption for the broader economy (especially traders & SME), which may also make the market cautious in the coming days. 

Also there will be varius geo-political headwinds in the coming days and above all, US market may also be very overdue for a correction, espicially in the delay of much awaited "Trumponomics".

Technically, irrespective of any narratives Nifty may be extremely overbought and ready for some overdue correction and only consecutive closing above 9000 area, it will target 9200-9350 or even 9865-10100 zone in the coming months (FY-18); otherwise it will fall again towards 8575-8425 area in the coming days.

 SGX-NF