Nifty Jumped By 0.83% And Closed At Another Milestone Following Recovery In Mfg PMI & Rally In RIL

Market Wrap: 03/04/2017 (19:00)

NSE-NF (April): 9274 (+76 points; +0.83%)

NSE-BNF (April): 21585 (+97 points; +0.45%)

For 05/04/2017:

Key support for NF: 9235-9195

Key resistance for NF: 9310-9350

Key support for BNF: 21450-21350

Key resistance for BNF: 21675-21850

Time & Price action suggests that, Nifty Fut (Apr) has to sustain over 9310 area for further rally towards 9350-9395 & 9425-9465 and further 9505-9550 by tomorrow / in the short term (under bullish case scenario).

On the other side, sustaining below 9290 area, NF may fall towards 9235-9195 & 9150-9105 and further 9040-8900 area by tomorrow / in the short term (under bear case scenario).

Similarly, BNF has to sustain over 21675 area for further rally towards 21750-21850 & 21950-22150 area by tomorrow / in the near term (under bullish case scenario).

On the other side, sustaining below 21625-21550 area, BNF may fall towards 21450-21350 & 21100-20900 zone by tomorrow / in the near term (under bear case scenario).

Nifty Fut (Apr) today closed around 9274, at day high after rallying 76 points and made an opening session low of 9203. Indian market today opened in a positive tone, just above the previous record high of 9220 primarily on the strength of index heavyweight RIL, who also rallied today by over 4% on the back of better than expected paid subscribers additions for its telecom venture (R-Jio); although the company has extended the free service for another four months, thus foregone for around Rs.5000 cr of revenue from its 72 mln + paid subscribers!!

Further, domestic market sentiment got a boost after release of Markit Mfg PMI for March, which came at pre-DeMo level of 52.5 against Feb figure of 50.7. The marked improvement in Mfg PMI is at five months high and accompanied by expansion in production & orders besides increasing export activity. The underlying business confidence has also improved significantly and overall PMI data may be also indicating that DeMo led economic disruptions have almost eased in March with relatively muted core inflationary pressure.

Also, global giant GS has recently predicted FY-17 & FY-18 Nifty target around 9500 & 10200, citing recovery in earnings. GS is expecting an EPS growth of Nifty for 12% & 15% for FY-17 & FY-18; i.e. around 415 & 477 Nifty EPS against FY-16 EPS of 370 & Q3FY17 TTM EPS of around 385.

Globally, all the major Mfg PMI data came upbeat from China to Italy, except UK, which may be also an indication of improving global economic outlook being reflationary in nature. Thus, the Indian market today outperformed its global peers ahead of a holiday tomorrow on the back of RIL, hopes of a double digit growth in Nifty EPS in FY-17 & 18 (against average growth of around 7% for the last few years), speedy implementation of GST by 1^st July and likely strong GDP growth in FY-18 (FM has pitched for a GDP growth of 7.2% & 7.8% in FY-17 & 18 on the weekend).

Market may also watch keenly RBI Gov’s speech on 6^th Apr as it’s almost certain now that RBI will be in hold, being in neutral mode. Being a known inflation hawk, Patel & MPC may be hawkish (owlish) this time considering overall macroeconomic scenario and a probability of a deficient monsoon this year, which may also cause CPI and food & core inflation to spike. An economy, growing around 7-8% may not need any further repo rate cuts from the RBI to avoid overheating. RBI may focus on NPA resolution mechanism in FY-18 rather than any incremental rate cuts because it may be the most serious issue now for the fragile PSBS & also for some of the old private banks (ICICI/Axis) and resolution of India’s legacy issues of twin balance sheets may be also very vital for the Govt in order to kick start corporate lending & private investments.

PSBS today underperformed because of lack of any big bang announcement by the Govt for any “bad bank/super ARC” as was expecting by the market. But, ICICI & Axis today also gave some support to the market, may be a deleverage deal of Essar group, which owes a significant amount of NPA to these private banks. But, the deal between Essar & Rosneft may again came under some doubts as LIC is reportedly has some objections; although Govt is itself keen to see the $20 bln deal to happen as it is intended for s significant clean up of NPA for the co on the Indian banking system.

IT counters were also under pressure today as Infy founder saga continues for another big controversy apart from weak USDINR. But Pharma counters today gave some support as concerns of US FDA may have been eased to some extent after recent panic (various WL & import alert on various companies).

India may be now one of few the EM(s), very stable politically & macro economically and thus currently seeing a huge FPIS inflow besides shifting of domestic flows in to the EQ market, especially after DeMo. Thus, combination of power of liquidity and hopes of better prospects of Indian economy & big bang reforms after huge election win of NAMO may be some of the reasons for the strength of the market, beside a stable & strong INR; now both Govt & Corporate needs to deliver in the coming days as at around 9300-9500, valuations of Nifty may be extremely stretched at current EPS of 385 (24.15-24.67).

Market may also watch any official IMD forecast about trajectory of Indian monsoon this year, which may be announced shortly (this week). A combination of a hawkish RBI & deficient monsoon this year may not be good for the Indian market in the coming days, despite hopes of earnings recovery & big bang reforms.

SGX-NF

 BNF