Technical & Macro Analysis Of Indian & Global Market----: Nifty Dragged By 55 Points Amid Geo-Political Tensions After US Missile Strikes On Syria And Closed Almost Flat For The Week After “Hawkish Hold” By RBI; What’s Next?

Market Wrap: 07/04/2017 (19:00)

NSE-NF (April): 9217 (-55 points; -0.59%)

NSE-BNF (April): 21445 (-198 points; -0.91%)

For 10/04/2017:

Key support for NF: 9160-9115

Key resistance for NF: 9255-9305

Key support for BNF: 21400-21300

Key resistance for BNF: 21675-21775

Time & Price action suggests that, Nifty Fut (Apr) has to sustain over 9330 area for further rally towards 9375-9425 & 9465-9505 in the short term (under bullish case scenario).

On the other side, sustaining below 9305 area, NF may fall towards 9255-9195 & 9160-9115 and further 9085-9040 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 21775 area for further rally towards 21875-21950 & 22050-22150 area in the near term (under bullish case scenario).

On the other side, sustaining below 21725 area, BNF may fall towards 21650-21500 & 21400-21300 and further 21200-21040 zone in the near term (under bear case scenario).

Nifty Fut (Apr) today closed around 9217, down by 0.59% after making a session high of 9270 & late day low of 9200. Indian market today opened gap down on the back of geo-political tensions after US strikes a Syrian airbase with 59 cruise missiles early in the morning. Although, there was some indication about an impending attack by US after some alleged use of chemical weapons by Syrian military few day ago, the sudden attack despite ongoing visit by the Chinese Prez in US and deep involvement of Russia in Syria has caused a “risk off” trade this morning. USD/US bond yields doomed along with EQ and USTSY bonds, Yen, Gold soared for flight to safety (safe heavens); crude oil also jumped quite significantly as a result of geo-political tensions.

Although, Indian market today recovered swiftly soon after opening gap down as a result of short covering, in the last hour of trading the market was again dragged, specially by RIL, Banks, Pharma, IT & FMCG shares. Only TCS gave some support along with BPCL, Infratel & Bharti Airtel.

RIL today dropped by around 2% after TRAI instructed R-Jio yesterday to discontinue any further promotional schemes. Apart from optimism about R-Jio, there were also some others factors like completion & start of its new petchem project after significant capex over the years, which may increase its FCF significantly and under ownerships of RIL shares in the market due to decade of underperformance & tepid CAGR in EPS.

But as par various reports, R-Jio may contribute positive EPS in RIL’s consolidated earnings only after FY-22 by around 2/- and between FY: 18-21, net contribution may be negative (-21 to -9); considering the overall capex & scale of R-Jio, it may need at least 200 mln paid data customers at an average ARPU of 200 & industry EBITDA benchmark of 25% to break even. R-Jio may acquire around 100 mln paid customers by FY-18; but henceforth new customers will compare overall quality of service & fees with other incumbents and thus this may not be so easy to acquire another set of 100 mln paid customers; market may be too much optimistic prematurely over R-Jio.

Technically, RIL (LTP:1406) has to sustain over 1450-1475 zone for next leg of rally towards 1525 & 1630-1710 area; otherwise it will come down and sustaining below 1375 zone, may further fall towards 1325-1240 & 1200-1150 area in the short to medium term. RIL is one of the stocks, responsible for the recent rally in Nifty.

Banks, especially PSBS were another sector also contributed immensely for the rally in the market on the hopes for some quick & effective NPA resolution mechanism by the Govt/RBI and a SDF mechanism to drain out excess DeMo liquidity. But none of these may happen in near future as Govt/RBI will study further the liquidity & NPA issues and may take some appropriate action after Q1FY18. There may not be any Govt sponsored big bang Super ARC or bad bank to deal with stressed assets and Banks/RBI will deal with case to case basis for large NPA. RBI will be empowered as an enforcement agency (2^nd ED??) to deal with NPA and may also investigate any wrongdoing angle for a NPA.

RBI yesterday hiked reverse repo rate by 0.25%; although at a glance this may be positive for the banks as they may earn more by lending to RBI; but overall it may also hike cost of funds as in the excess liquidity scenario, short term rate may be more influenced by the reverse repo rate rather than repo rate & other factors. Banks have already lowered their MCLR and thus going forward, there may not be any drastic cuts in MCLR/base lending rate. Some analysts also feel that by hiking reverse repo rate, RBI may be also giving an indication of any hike in repo rate in H2FY18 depending upon the growth/inflation equation and actual rate hike trajectory by Fed and their stance in balance sheet tapering. Thus, banks were under some pressure today after “hawkish hold” by RBI yesterday.

Meanwhile, US NFP job data came terrible today:

Headline NFP: 98K (estimate: 180k; prior: 219k-Revised); some analysts were also expecting an figure of around 210k after block buster ADP payroll data day before yesterday.

Avg. Hourly earnings: 0.2% (estimate: 0.2%; prior: 0.3%-Revised)

Participation rate: 63% (prior: 63%)

Unemployment rate: 4.5% (estimate: 4.7%; prior: 4.7%)

Thus, except unemployment rate, all are very tepid; but winter storm (?) related seasonal effect may also be there in the headline NFP figure and after initial knee jerk reaction USD also stabilized a bit. All eyes will be now on Trump’s meeting with Xi (Chinese Prez) and further reaction from Russia for the Syria attack issue. So, far Russia’s response is moderate and thus risk trade has stabilized a bit after an early melt down.

FFR is now indicating less probability of a June rate hike by Fed; but Sep is now still alive. As a fall out of today’s Syria attack, market may be apprehending that Trump’s focus will be now on geo-politics rather than Trumponomics (tax reforms, fiscal/infra spending, deregulation etc). As par US speaker Ryan, there may be further delay in passage of health care and also tax reform bill as there is still significant differences; but by this attack on Syria, Trump may also be able to politically unite all the warring RNC & DNC members and that may be only some hopes for a speedy Trumponomics in the months ahead; watch 110-109 level in the USDJPY for further “risk off” trade or some bounce back. Trump is now acting as a matured politician and may also act as a seasoned “currency manipulator” by further escalation of his (US) war on Syria & NK; thus devalue the USD further to make “America great again”.