Market
Wrap: 20/02/2017 (19:00)
Looking at the chart, Nifty Fut (Feb @8878)
has to sustain over 8895 area for further rally towards 8925/8945-8995 &
9035-9075 zone in the short term (under bullish case scenario).
On the other side, sustaining below 8875
zone, NF may fall towards 8815-8770 & 8725-8630 area in the near term
(under bear case scenario).
Similarly, BNF (LTP: 20667) has to
sustain over 20800 area for further rally towards 20950-21050 & 21300-21685
area in the near term (under bullish case scenario).
On the other side, sustaining below
20750 zone, BNF may fall towards 20650-20450 & 20300-20000 area in the near
term (under bear case scenario).
Nifty
Fut (Feb) today closed around 8878 (+0.58%) after making a session low of 8010
and closing minutes high of 8881.30. Indian market today opened almost flat
following mixed Asian cues after tepid trade balance data from Japan, but
supportive PBOC liquidity injection in China market. As US market is closed
today, all the focus may be on the increasing EU political risks in France,
Germany and also in Italy. Also, abrupt withdrawal of Uniliver bid by Kraft
Heinz yesterday dampened the EU market sentiment and ongoing Greece debt deal
is also in the focus. As par some unconfirmed reports, ECB may be thinking to
announce some types of bond buying tapering in its forthcoming meeting.
All
these global headwinds have made the EU market mixed today; but Indian market
has outperformed its global peers amid broad based rallies in telecom, IT &
Metal scrips. The domestic market sentiment was also supported by a strong INR,
brightening prospect of a July’17 GST roll out and overall better than expected
Q3FY17 earnings despite demonetization blues.
Apart
from Idea & Vodafone merger progress (?), there was also some reports that
Tata Telecom is actively persuading merger with RCOM-Aircel-MTS block in a move
for further consolidation in the Indian telecom space, where only players
having very deep pockets can survive in the backdrop of R-JIO’s aggressive
stance and wafer thin margins with tepid ARPU. This M&A in telecom space is
also helping other index scrips like Bharti Airtel.
After
official confirmation of the buyback price & other conditions, TCS was also
on fire today. The news has also ignited hopes of such further buy back offers
from the other cash rich IT pivotals like Infy, Wipro, HCL etc. TCS today
announced a buyback offer price of 2850 per share at 100:13 (??), which is
substantially higher (+18.4%) than its previous day’s (Friday) closing price of
2407. As a result, TCS today closed around 2502, almost 4% higher and helped
the market immensely. TCS will utilize up to Rs.16000 cr for this buy back out
of its cash balance of around Rs.42000 cr.
Metal
scrips were also in demand after better domestic outlook, M&A news
(consolidation in debt laden metal space) and Chinese demand revival &
hopes of Trump’s huge infra spending plan. Tata Steel was also in good demand
(+3.89%); apart from general surge in metal scrips, the fact that Tata Sons
will get a fair amount of cash from TCS buy backs may also help Tata Steel to
lower its huge debt burden by some extent. Infy may be the next IT candidate
for buy back for around Rs.12000 cr out of its cash reserve of around Rs.34000
cr.
There
was also some M&A news from JSW steel today for 50% stake of Monnet Ispat
having debt of Rs.9000 cr apart from deleveraging news from GMR infra.
All
these buy backs, M&A (consolidation) and deleveraging news is supporting
the Indian market coupled with better than expected Q3FY17 earnings, despite
various global headwinds. Further a fiscally prudent budget and a hawkish RBI
has ensured INR stability despite “Trump Tantrum” and an unusual hawkish Fed
(stronger USD/US bond yields), which is also helping the Indian market right
now.
Buy
backs from IT companies may be good for the short term as its EPS accretive,
but it does not change the fundamentals & landscape of various headwinds
for the sector such as lack of timely adaptation of latest tech (AI, digital)
and various global jitters like “Trumpomania”, H1B visa issues, Brexit and also
challenge of cross currency headwinds. Also, substantial return of cash to its shareholders
may be indicating that IT companies are itself expecting limited inorganic or
organic growth in the days ached. Thus, any buy back induced price surge in the
scrip may be also an opportunity for investors to book some profit despite
these IT pivotals are quite rich in positive cash flows.
Axis & Kotak bank today fall slightly after Axis Bank managenet denied acqusition of Kotak Bank. Apart from Telecom, Steel/Metals, Banking industry may be going for further consolidation in the months ahead as Indian market may not be so big for so much banks. Also, in the back drop of tepid industrial activity/demand & bank credit, Govt may not infuse further capital in the PSBS for FY-18 and may not be also interested to put further tax payer's money for the huge NPA resolution.
Looking
ahead, actual impact of demonetization on the economy (GDP) & Q4FY17
earnings, other macro & high frequency economic data and outcome of state
polls, especially in the UP may dictate the domestic market sentiment. Although,
high frequency economic data in India has improved in Jan’17 after the
immediate impact of demonetization in Nov-Dec’16, it’s may be too early to take
a call and for that Q4FY17 data may be ideal. Also, tepid trend in 2-W sales
even in Jan’17 may not be a good indication for the unorganized/informal or
cash economy, which accounts for almost 40% of India’s GDP and 75% of the total
labour force. Overall, immediate impact of demonetization mat be neutral or
even good for the organized sector (big corporates) as they are already digital
and may also face less competition from the unorganized sector after
demonetization, actual impact of the same may be very disruptive on the huge
unorganized sector of the Indian economy.
NF
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