Technical & Macro Analysis Of Indian & Global Market----: Nifty Closed Almost Flat, But Off The High In A Day Of Consolidation Amid Tepid Global Cues & Hopes Of A Normal Monsoon & RBI Rate Cut (?)

Market Wrap: 11/05/2017 (17:00)

NSE-NF (May): 9437 (+18 points; +0.19%)

NSE-BNF (May): 22812 (-49 points; -0.21%)

For 12/05/2017:

Key support for NF: 9390-9340

Key resistance for NF: 9475-9550

Key support for BNF: 22700-22550

Key resistance for BNF: 2300-23075

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9475 area for further rally towards 9510-9550 & 9600-9680 in the short term (under bullish case scenario).

On flip side, sustaining below 9450 area, NF may fall towards 9390-9340 & 9295-9245 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23000 area for further rally towards 23075-23200 & 23405-23475 area in the near term (under bullish case scenario).

On the flip side, sustaining below 22950 area, BNF may fall towards 22825-22700 & 22550-22450 area in the near term (under bear case scenario).

Nifty Fut (May) today closed around 9437, another record high and almost 0.19% higher, but off the day high of 9464 to close almost flat near the opening low of 9432. Indian market today also opened almost flat following mixed global cues and better prospect of monsoon this year as predicted by IMD (although SKYMET is cautiously optimistic, predicting just normal rainfall of 96% of LTA against IMD’s 100-106% LTA).

Overnight, US market also closed almost flat, but off the lows amid rebound in oil due to surprised US inventory drawdown. Also weak US TSY auction (better yield) and some hawkish comments from an influential Fed member calling for 3 more hikes may have influenced the USD/US bond yields & risk trade. Yesterday’s US export & import index was also looks upbeat/better than expected and together with that some dovish stance of Draghi may have also made the USD stronger.

Despite serious political concerns over Trump’s alleged Russian link, market is relatively calm may be because even if Trump will be impeached in future, RNC members are full in control of the US House (senate/congress) and thus, there may not be any serious political deadlock, even if Trump is impeached. In any way, growing US political risks may be serious headwinds for Trumponomics as Trump will be busy with such political & administrative mess rather than US economic/structural reform.

China/Hong Kong market came under some late pressure today due to concern over increasing regulatory tightening over leverage trading and slump of iron ore futures.

Indian market although today traded in some upbeat mood after flat opening due to optimism about the IMD’s prediction of a normal monsoon, this year, the market soon came under some pressure (profit booking/long unwinding/fresh shorts at record high level) in private banks (except Kotak bank for QIP), oil & gas (Gail/ONGC) & telecom (Bharti Airtel). As almost all the “good news” may have been priced in, domestic market may be consolidated today on the back of tepid global cues & mixed Q4 earnings so far.

USD (risk trade) came under some renewed pressure today after EU market opening as another influential Fed member (Dudley) called for a gradual rate hike, a tapering of Fed’s balance sheet (QE bond holdings) by Dec’17. He also warned that USA may suffer significantly due to Trump’s trade protection policy.

Later in the day, BOE (UK) came with a “hawkish hold” stance, warning about inflationary pressure & a hard Brexit effect on Britain’s economy. All these may have affected global market (risk on) sentiment today and Indian market also affected towards the closing session. But, despite apparent hawkish scripts, GBPUSD nosedived, may be because none of the BOE members today voted for a rate hike and moreover, Carney’s apprehension about a hard Brexit. In any case, BOE may not hike till there is clarity about Brexit modalities (hard or soft) and despite higher inflation & lower real wage growth/consumer spending in UK; BOE is expected to be neutral till Brexit uncertainty is over. Thus, GBPUSD is getting some weakness and is unable to break the resistance of 1.30 and targeting the area of immediate support of 1.27-1.25.

Indian market may be also very optimistic about a good monsoon and its effect on the overall rural economy, favourable effect on inflation and subsequent RBI rate cut (?). Although, a good monsoon may be always supportive for the rural economy, the overall macro picture may have also changed quite a lot in the last few years due to various steps like thrust on irrigation, some modern approach in agriculture (farming) etc. Also, proper/even distribution & timing of rainfall all over the country is more important than the absolute amount of rains, may be it +/- 5% of LTA.

Also, considering overall scenario & macro economic situation and global (Fed) factors, RBI is expected to be on “neutral mode” till late FY-18, solely on the fact that there is very limited scope for the banks to transmit further rate cuts, unless small savings rate in India is cut drastically. Going forward, RBI may focus more on NPA & currency (USDINR) management. For the Govt, bond market may be more important to fund its deficit and thus RBI may not cut aggressively in the months ahead to weaken the INR and the Indian bond yields, forcing the FPIS to exit.

Indian market today was supported by autos & 2W (better monsoon prospect and IMD’s confirmation that monsoon will hit Andaman Islands as par schedule). Hero Motors rallied by also 4% despite tepid Q4 report card on the back of upbeat commentary by the management in the post result con-call. ZEEL also rallied by more than 5% for better than expected Q4 result and ad revenue despite DeMo blues.

Today, Indian CEA also came heavily on the global rating agencies for “double standards” in their approach for rating India & other peers (China). But, rating agencies may have also their own rating parameters like GDP/income per capita, tepid private investments, huge banking stress, implementation of various reform policies & its result, issues of twin balance sheet and overall doubt about India’s methodology over the new GDP series.

But, despite just above junk international rating, India is now one of the most favored investment destination globally, just because of “Modinomics” & appeal of 4-D (demand, demography, democracy & deregulation). Moreover, after recent block buster win in the state elections (UP) and subsequent perception of a political risk free stable democracy till at least for next ten years, rating agencies may began to upgrade India in 2018 (after smooth GST implementation, some result of ongoing NPA reform and improvement in consumer spending/disposable income etc) and only after then we may have the “mother of all bull run”.