Nifty Snapped Six Days Rally And Closed 0.41% Lower Following Muted Global Cues Amid “Trumpfatigue” & GDP Data Tomorrow; Telecom & Banks Dragged, While RIL Saved The Day.

Market Wrap: 27/02/2017 (19:00)

Looking at the chart, Nifty Fut (March @8919) has to sustain over 8975-8995 area for further rally towards 9035-9075 & 9125-9195 in the short term (under bullish case scenario).

On the other side, sustaining below 8955-8925 zone, NF may fall towards 8890-8840 & 8800-8715 area in the near term (under bear case scenario).

Similarly, BNF (LTP: 20678) has to sustain over 20950 area for further rally towards 21050-21150 & 21350-21500 area in the near term (under bullish case scenario).

On the other side, sustaining below 20900-20750 area, BNF may fall towards 20600-20500 & 20250-20000 zone in the near term (under bear case scenario).

Nifty Fut (March) today closed around 8919 (-37 points) after making an opening session high of 8957.10 and late day low of 8909. Indian market opened almost flat today following negative Global/Asian cues after Trump disappointed the market about its lack of specific plans for US tax cut and fiscal spending. Also as par reports, the much awaited $100 bln/PA infra spending plan of Trump may be delayed by another one year because of lack of consensus within US congress and budget constraint. For the time being, Trump may spend heavily in the US defence and on the proposed border wall construction with Mexico!! Also as par his TSY secretary, US congress will be able to pass any “phenomenal” tax cuts/reforms plan only by Aug’17. Now, all eye will be on Trump’s 1^st congressional speech tomorrow and market is expecting at least some specific hints about his “huge tax cut plan”; Trump may call for 10-15% cut in US corporate tax and that may be already discounted by the market. Any disappointment from specific “Trumponomics” plan, US as well as global market may also be sold off from the
“phenomenal hope rally”.

Apart from the ongoing “Trumpfatigue”, global market was also under pressure for new development in the Brexit saga as Scotland is reportedly going for a 2^nd independence referendum of its own for either to stay with UK & out of EU or stay out of UK & with EU as an independent nation (?). Although, Scottish stance of pro-EU is well known, and in the 1^st referendum in 2014, narrowly voted for stay with UK, this new development may again hamper the actual Brexit process of UK, which is poised to invoke the Article-50 by next month. Also, Scotland being a very small & insignificant part of UK’s overall economy, any Scottish secession may not matter so much for the UK’s economy and for the global market; it’s certainly sentimental and can cause more some disintegration & political problem in the whole EU universe.

Political situation & the financial market in France has stabilized today by some extent after latest poll is showing decreasing popularity for both the extreme left & right parties/candidates and increasing approval rate for the centrist Presidential candidate. Still, market will be on edge till the actual outcome with bitter memories of Brexit & Trumpism in the recent past amid rise of nationalistic politics & anti-establishment movement in EU and also in the USA.

Among all these ongoing geo-political headwinds, Indian market also came under some selling pressure as there was no fresh triggers and the market is also extremely overbought; thus today’s small correction may be termed as more technical rather than fundamental; but at around 9000 level, Nifty may also be on the historical higher valuation range with PE of around 23.50 at TTM EPS of 383; expected FY-17 EPS may be around 410.

Domestic market today was dragged by Telecoms (intense tariff war & bloodbath after R-Jio’s surgical strike), banks (concerns of telecom NPA as the sector may come under severe stress and M&A disappointment), autos (concern ahead of Feb monthly sales data day after tomorrow) and metals (China & Trump concern). But RIL & some IT counters today supported the market.

RIL was in limelight today after MS upgraded it for 12M TP of 1506 from earlier 1280 on the optimism of higher earnings from energy business (petchem) and hopes of better EBITDA from R-Jio as it will start its commercial operations from 1^st April’17 with a blockbuster plan & pricing of 303/-. The stock rallied to around 1257 in the opening minutes (+6.5%) and closed slightly down around 1239.

In any way, whatever be the narratives, technically RIL need to sustain over 1275-1295 zone consistently for any further rally towards 1340-1410 & 1450-1515 area in the mid to long term; otherwise it will fall again and sustaining below 1225-1205 area, may further fall towards 1170-1140 & 1095-1045 area in the short term.

Private Banks today also corrected after diminishing hopes about any imminent M&A for the Axis Bank. Indusind bank today also falls slightly after reports that the proposal of Bharat Finance acquisition may be in doldrum after the later is reportedly talking with RBL bank also for better valuation.

Domestically, all eyes will be on the GDP data tomorrow after so much confusion about true impact of the demonetization on the formal & informal economy. As there is no formal method to measure the informal economy output, the same may be measured by a proportion factor of the formal economy output by the CSO and so, we may never know the actual impact of demonetization on the informal economy. In any way, market is expecting a Q3FY17 GDP growth of 6.4% this time against 7.3% measured in Q2FY17. Also Q4, US GDP will be flashed tomorrow and the median estimate is 2.1% against 1.9% in Q3.

After remonetization by around 60-70%, it seems that Indian cash economy is limping back to normal and people/small business are again using cash despite all the digital narratives. Demonetization will be successful only if India’s Tax/GDP ratio will improve significantly apart from some short term windfall gain from IDS. After remonetization and even after implementation of GST, if informal economy (unorganized sector) is again back to normal, the so called positive effect of the demonetization & GST may not be great for the organized sector contrary to some perception; unorganized sector will again throw some competition for the organized sector because of lower cost of compliance; in an economy & democracy like India, both sector has to survive side by side despite all the demonetization & GST narratives.

Also, a hurried implementation of GST form July’17 (?) with so much confusions, complexities and regulations may not be good for even the organized sector and as par some analyst, corporates or traders may keep minimum inventory in the months ahead for lack of clarity on the input tax credit date. This may again cause some disruptions for the corporate earnings and also for the overall economic activity.

Technically, NF may correct to 8715 area, if sustained below 8890-8840 consistently and fresh break out will come only above 8995-9035 till 9195 in the short term. 

SGX-NF

 BNF