Market
Wrap: 01/03/2017 (19:00)
Time & Price action suggests that,
Nifty Fut (March @8972) has to sustain over 8995 area for further rally towards
9035-9075* & 9125-9195 in the short term (under bullish case scenario).
On the other side, sustaining below 8975
zone, NF may fall towards 8920-8875* & 8840-8790 area in the near term
(under bear case scenario).
Similarly, BNF (LTP: 20838) 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 area, BNF may fall towards 20600-20500* & 20350-20000 zone in the
near term (under bear case scenario).
Nifty
Fut (March) today closed around 8972 (+63 points) after making a late day high
of 8994 and opening minutes low of 8922. Indian market today opened almost flat
following mixed global cues and a stronger USD/US bond yields amid ongoing
& also quite unusual hawkish jawboning by various Fed speakers, which made
FFR jumped to almost 80% from overnight 50% for March (implied Fed rate hike
probability).
Today’s
congressional speech from Trump has nothing new, which is unknown to the market.
But, despite lack of specifics of his “Trumponomics”, the US Prez looks for the
1st time looks more like a “President” of the world’s most powerful
nation rather than a business CEO and after 1st month of turbulence,
was seen more composed, calm & matured. Trump’s overall conciliatory
approach/speech today without naming any nation (China) as currency manipulator
or otherwise, stance of change for the controversial immigration ban issue to
rely more on “merit” based system and appeal to congress to approve his $1 tln
infra spending plan over the next ten years in PPP funding mode has made him to
look like a more matured politician. Eventually, Trump will have to act like a
politician rather than a hard core business man (give & take policy) or an
out of establishment guy to pass all his plans from the US congress either
through consensus or through voting and only then his rhetoric will see the day
of the light.
All
these along with Trump’s pledge to spend $54 bln for defence spending by
slashing equivalent budgetary amount from other “unproductive” areas of the US
economy & external funding (NATO) has made the US market upbeat and SPX-500
is now trading around its life time high (2376). Market may be patient to see
the actual shape of “Trumponomics” in the coming days and its funding &
issues of US fiscal deficit ($550 bln expected).
In any way, technically, SPX-500 now needs
to sustain consistently over the 2375-2395 zone for further rally towards
2410-2465 & 2500-2550 in the near to midterm; otherwise it may fall again
towards 2360-2340 & 2320-2295 in the near term.
Various
Fed speakers were unusually hawkish in the recent times; but despite that
market was not convinced about any March hike. But today two of the well known
Fed doves has changed all the equations by giving their “wholehearted” support
for an imminent & successive three hikes, citing “robust” US economy. As a
result, FFR is now around 80%, which was around 35% last week and 50%
yesterday. Thus, USD/US bond yields are getting stronger despite a tepid US GDP
for Q4 and overall mixed set of economic data. Market will now focus on various
upcoming Fed speakers; but Yellen’s speech will be closely watched on Friday
after which Fed will be in “quiet mode” before policy date on 15th
March. There will be no NFP job data this week (??).
But
despite all the Fed rhetoric, ultimately Yellen will have to look to her
political boss (Trump & Co) and in reality, depending upon their view, will
act in March. As despite all the hawkish scripts of Fed, Trump & Co is now
itself against a stronger USD and without specifics of “Trumponomics”, Fed may
prefer to be in the sideline and eventually will not hike in March or even in May’17
as any real Fed action will now depend on politics rather than economics.
Moreover, Fed meet in this month (March) still have no press conference and it
will be very unusual & shocking, if Fed hikes rate without a scheduled
presser.
In any way, whatever be the narratives,
USDJPY (LTP: 113.90) has to sustain over 114.50-116 area for any further rally
towards 118.75 zone; otherwise it may again fall towards 111.35 and sustain below
that 110.65-107 area may be the near term technical target.
EM
including Indian market may not be discounted yet for any surprised Fed hike in
March and if Fed indeed hikes this time, both EM & Indian market may see
some knee jerk reaction and there may be again some structural shifting of
funds from EM to DM (US) for better US bond yields and hopes of GDP growth
above 2% trend line as a result of Trumponomics (Trump Tantrum for EM).
Back
to home, despite a strong USD and indication of a “Live” March meeting by Fed,
Indian market today trashed that perception and rejoiced for the unexpectedly
better Q3 GDP of 7% flashed yesterday despite all the DeMo narratives. Domestic
market sentiment also got some boost after Markit Mfg PMI for Feb flashed as
50.7 against estimate of 50.3 and prior figure of 50.4 (Jan). Although, the
headline number is itself not great considering the global average PMI, which
is hovering around 55 now, today’s PMI came above the boom/bust line of 50 for
the two consecutive months after Dec’16, which indicates more of gradual
expansion of the Indian economy after severe contraction seen in Nov-Dec data
(<50). Also mixed auto sales data and better sales of tractors (proxy for
rural economy) by M&M in Feb has boosted the market sentiment today.
Banks
were in the limelight today after market buzz of various probable M&A deals
like acquisition of KTK bank by Kotak Bank (?? at 5:1 ratio-HOS), stake sales
news of a Malaysia bank JV (IIBM) by IOB & BOB etc. Indian banking industry
may see some consolidation like in telecom space, where small private banks may
be merged with their bigger counterparts for better operational synergies and
capital utilization. Eventually, PSBS may be also merged within a few years and
we may have only 5-6 big PSBS & Private banks as banking also now required
a deep pocket on the back of increasing regulatory requirement (BASEL-III)
& stressed assets issues. Like telecoms & banks, metal sector (steel)
may also consolidate for better management & NPA issues. Various M&A
deal, deleveraging and buy backs may be some of the reasons apart from RIL/Rio’s
better prospect for the recent domestic market strength.
There
is no doubt that Indian economy is limping back to normalcy after DeMo &
subsequent ReMo and market is also cheering the same with Nifty hovering at
around all time high in conjunction of the global market. Also better than
expected Q3FY17 earnings, a fiscally prudent budget with no capital market tax
related negativity and a hawkish RBI has helped the Indian market & INR
quite remarkably despite all the DeMo blues.
But
market may not be discounted for any permanent loss of demands as a result of “war
against black money” which is traditionally responsible for large chunk of
Indian consumption story. As par some estimates, around 20-30% sales of high
value products may suffer in the long term, if the accumulated wealth (black
money) is lost or locked up, courtesy various IT or ED actions; rebuilding or
redistribution of the same will take considerable time. Thus, all will depend
upon the Govt’s future action or real stance regarding treatment of “DeMo
wealth” slashed in various bank accounts.
Another
point is that despite DeMo & limited ReMo, it seems that the informal
economy or the unorganized sector is also limping back to normalcy as availability
of cash has increased significantly and most of the transactions there are also
happening in cash now irrespective of all the digital narratives. Thus, it’s
very tough for a country like India to become one type of economy (formal)
without any parallel economy (informal). Any informal business will find it
tough to exist, if it is compelled to meet all the regulations and tax compliances
cost and thus, the policymaker’s apparent goal to merge the informal &
formal sector for a better economic output (GDP) may also be in doubt.
The
Q3 GDP figure of 7% released yesterday as a preliminary estimate, which may
also be revised significantly on the downside in May’17 & Jan’18 (final) as
it has failed to take into account the economic output of the informal economy.
There is no specific methodology to measure the output of informal economy and
its being calculated by a simple proportionate/statistical ratio of the formal
economic output. Hopefully, more actual data will come in the coming months to
assess the true state of the Indian economy. A consistent GDP growth of 7-8%
for an economy with higher trajectory of core CPI around 5% may also compel RBI
to hike rates in the months ahead instead of incremental cuts as par pure text
books.
Apart
from the ongoing global cues, Indian market may also watch keenly various
incoming macros and Q4 earnings in the months ahead to gauze the actual
strength of the economy; Nifty EPS (Q3FY17 TTM) may be now around 385 and
market may be expecting an EPS of at least around 410 by FY-17; in that scenario,
at 9000-9200 level, Nifty FY17 FWD PE will be around 21.95-22.45, which may be
in the bubble zone & also quite expensive, considering the actual average CAGR
of Nifty EPS around 10-15% going on for the last few years or being projected
for the future years.
In any case, whatever be the
narratives, one should watch 9035-9075 area as big hurdle in Nifty/NF for any
further rally, which is so far driven mainly by incremental DII inflow (MF SIP
from Indian households/retails, which has also increased after DeMo for various
reasons). Only consecutive closing above 9035-9075, Nifty may test 9195-9260
& 9380-9550 area in the short term; otherwise it will again come down to
around 8840-8790 zone, which is now acting as immediate positional support. Perhaps a clean sweep by BJP in the state elections result/UP may be required for 9200-9380 or any disappottment can cuse it to slide to 8840-8790.
SGX-NF
BNF
SPX-500
USDJPY
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