Technical & Macro Analysis Of Indian & Global Market----: Nifty Closed Almost Unchanged Supported By FMCG/GST Boost & IT; But Dragged By Banks Due To Renewed Concerns Over Stressed Assets & Tepid Global Cues (US Political Concerns & Hard Brexit Anxiety)

Market Wrap: 22/05/2017 (17:00)

NSE-NF (May): 9445 (-0.75; -0.01%) (TTM PE: 23.95; Near 2 SD of 25; TTM EPS: 394; NS-9438)

NSE-BNF (May): 22685 (-114; -0.50%) (TTM PE: 31.12; Above 3 SD of 30; TTM EPS: 728; BNS-22653)

For 23/05/2017:

Key support for NF: 9420-9395/9375

Key resistance for NF: 9500-9535/9600

Key support for BNF: 22590-22450

Key resistance for BNF: 22800-22900/23000

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9535-9560 area for further rally towards 9600-9640 & 9680-9770 in the short term (under bullish case scenario).

On flip side, sustaining below 9515-9470 area, NF may fall towards 9420-9395/9375 & 9320-9280/9240 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 22900 area for further rally towards 23000/23075-23200 & 23325-23450 area in the near term (under bullish case scenario).

On the flip side, sustaining below 22850-22750 area, BNF may fall towards 22650-22590 & 22450-22300 area in the near term (under bear case scenario).

Nifty Fut(May) today closed around 9445, almost flat after making an opening minutes high of 9492 & session low of 9427 in another day of consolidation. Although Nifty was flat in an overall day of range bound trading, broader market (Midcaps) were under visible stress today along with Bank Nifty due to concerns of stretched valuations, mixed Q4 report cards (so far) and renewed apprehensions about stressed assets in the Indian banking system (PSBS & some private banks).

Q4FY17 report card of SBI shows that, although on standalone basis, NPL has moderated for the country’s largest lender, on consolidated basis, the NPL situation is quite grim due to very high level of stressed assets in the recently merged other banking entities of SBI. On the other side, divergence of NPA issues with the RBI continues to drag on some of the selected private banks (Yes, Axis, ICICI etc) and overall, a sense of mistrust may be there as far issues of NPL and market may be concerned for more “hidden” stressed assets in the system, which may got exposed as a result of ongoing NPA ordinance/policy by the RBI (mini AQR).

Also, report card of BOI, which has shown quite elevated level of NPA/NPL, may have affected the overall sentiment in the PSBS space, which has run quite a lot in the recent time on the hopes of an effective NPA resolution policy by the Govt/RBI and improvement in the stressed assets. As par reports, RBI may come out with more NPA resolution policy (hair cut) by next two weeks and market may be concerned over various rules & regulations (various oversight committees) and forced hair cuts by the banks; the process may take another 1-2 year to yield some result/actual resolution.

Today Nifty was supported well today by ITC (+6.08%), HUL (+1.05%); i.e. FMCG counters due to favourable GST rates; although the same may be in the expected line. Along with GST boost, prospect of a good monsoon this year may be also helping the FMCG stocks in the recent times.

Nifty was also supported by IT stocks (HCL Tech, TCS, Infy) to some extent today. For the last few days, since Trump’s political crisis and high probability of an impeachment, IT stocks are rallying to some extent, may be Trump’s absence in WH (if impeached) is good for IT companies (H1B Visa issues by Trump). Also, Indian Govt officials & NASCOM are closely co-coordinating (lobbying) with the concerned high US authorities to look after the interests of the Indian outsource companies (IT) and thus, market may be expecting some “relief” from these H1B Visa concerns.

Liquor stocks were in demand today after analysts found that it may not be under GST sin tax as of now. But airline stocks were affected for some concerns over high GST rate in business class travel and also for the surge in crude oil prices.

Indian market today opened around 9480; gap up by 24 points following mixed global cues and GST & earnings optimism. Overnight, US market closed in positive (+0.69%) primarily on the strength in oil (energy related shares) & defence sectors (big deal with Saudi Arabia during Trump’s visit). Oil is trading higher around $51 after OPEC indication of not only production cut extension date till March’18, but also for some deeper production cut (quantity). But, supply glut and talk of 6 months cut against present buzz of 9 months may also limit any blockbuster rally from here. For India, higher oil above $55-60 may pose serious concerns for overall economy (macro headwinds).

US political concern may take more serious turn in the days ahead after Comey confirmed about his testimony with the US congress and there was some reports that some more WH officials (close aide of Trump) may be involved with the alleged Russian election interference. All these may invite an impeachment motion against Trump and as par some reports, US constitutional experts are exploring various probabilities & working hard for such unprecedented action in the recent US history. As Trump is now on a 9 day tour in the ME & EU, market is calm now; but US political drama may take ugly turn after his return next week.

Overall, USD was higher today after tepid trade data from Japan & some UK comments about probability of a “hard Brexit” for hefty fine proposal from EU (UK has to pay around $100 bln for Brexit)!! Thus, renewed concern for Brexit related EU political crisis today may have affected the EU market. Also, some dovish talks from German officials about ECB QE mechanism may have helped the USD in the early morning Asian session today; but another comment from Merkel & Co that “EURO is too weak” and ECB is responsible for the weak EURO may be again putting pressure on the USD.

Technically, EURUSD (1.1243) has to sustain over 1.12930-1.30 area for 1.16-1.20 zone; otherwise, the pair may fall and sustaining below 1.11450-1.10 area may further fall towards 1.07-1.05 zone in the short term.

Apart from UK & US political risks, market may be also concerned for Brazilian political crisis. Any serious Brazilian crisis may invite sovereign default (?) from the nation, which was one of the highly focused EM group among the investors and any such sovereign default may also trigger a chain of defaults among the US banks there, which may turn into another global crisis.

Looking ahead, apart from ongoing Q4 results, Indian market may also give more focus on the GST as 1^st July roll out day is now a reality as par the Govt/various stake holders. But, the Govt should come clear as there are twin issues of IT system and awareness/lack of preparedness among tax payers/GST stake holders with barely five weeks left for the implementation.

But, with so many tax slabs, especially in the service sector and with so much rules & regulations, the present GST structure may be far from the original concept of “one tax one nation” and may be much more complex, than being a simple GST regime. Market may take more time to digest this GST; Q2FY18 earnings may be affected for GST related disruptions and market may be also concerned for GST compliance costs and its adverse effect on the SMES & overall unorganized sector of the Indian economy, which may find it quite difficult & unviable to continue their business by paying full compliance costs of the GST & DeMo. Thus, the projected thrust on GDP (around 1.5%) & corporate earnings because of implementation of GST may also be under cloud.

Apart from GST disruption, Indian market may be also concerned for any escalated conflicts between India & Pak due to increasing domestic compulsions from both the nations; weekend reports from the HM & the Air Force Chief calling for preparedness ( to be ready for war & appropriate response) at short notice may be also affecting the sentiment.