Technical & Macro Analysis Of Indian & Global Market----: Nifty Closed By 0.44% Higher Despite Tepid Global Cues Amid Hopes Of RBI Rate Cut Following Lower Inflation & An Early/Better Prospect Of Monsoon

Market Wrap: 15/05/2017 (17:00)

NSE-NF (May): 9456 (+41; +0.44%)

NSE-BNF (May): 22829 (+160; +0.70%)

For 16/05/2017:

Key support for NF: 9380-9340

Key resistance for NF: 9485-9515

Key support for BNF: 22720-22550

Key resistance for BNF: 22875-23000

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9485 area for further rally towards 9515-9550 & 9600-9680 in the short term (under bullish case scenario).

On flip side, sustaining below 9465 area, NF may fall towards 9380-9340 & 9295-9245 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 22875 area for further rally towards 23000-23075 & 23200-23325 area in the near term (under bullish case scenario).

On the flip side, sustaining below 22725-22600 area, BNF may fall towards 22500-22300 & 22050-21950 area in the near term (under bear case scenario).

Nifty Fut (May) closed around 9456, up by almost 41 points after making a day high of 9458 & low of 9437 in an extremely choppy day of trading. Indian market (NF) made a gap up opening of around 35 points itself on the back of mixed global cues & lower CPI/WPI data released on Friday after market hours.

CPI came at 2.99% for April, thus triggering another RBI rate cut hopes in its forthcoming monetary policy meeting on June’17; although core inflation continues to be sticky at 4.55% against 4.9% in March. The domestic market sentiment was further boosted today as SW monsoon hits Andaman Islands 3 days in advance, which also triggered a possibility of an early monsoon in Kerala & all over India subsequently. IMD experts are very optimistic about probability of a more than normal monsoon (100-106% of LPA) this year on the back of weakening El-Nino & strengthening IOD effect contrary to the perception of the Skymet, which is projecting just normal monsoon (96% of LPA).

Although, CPI dips below 3% in April on the back of fall in food prices & oil, this trend may be seasonal and looking ahead one can expect some surge in food inflation amid production & supply constraint. Oil is also expected to go higher amid increasing buzz about extension of OPEC cut agreement for another 9 months or till CY-2017. Thus, going forward, RBI may also take a “wait & watch” policy for actual monsoon, its distribution & timing and the overall effect on the inflation & production of Rabi/Kharif corps. RBI may also watch effect of GST & 7-CPC arrears on the inflation trajectory and thus it may be on the “neutral” stance at least till H2FY-18. Apart from the inflation & real rate of interest angle, RBI may also find it tough to cut repo rate further as the Indian economy is growing around 7-7.5% and an economy, which is growing so fast, may not need incremental rate cuts from its central bank.

Also, USDINR interest & bond yield differential may be another criteria for RBI to be on hold in the coming days and stability of INR may also be vital for a vibrant Indian bond market offering better bond yields to the yield hungry investors (FPIS).

Above all, there may not be a scope for further rate cut transmissions for the banks to lower their MCLR & base lending rate significantly (even if RBI cuts in the months ahead), until small savings interest rate in India is cut aggressively by the Govt, which is quite tough because of political compulsion at this point of time. Going ahead, RBI may focus more on NPA resolution rather than rate cuts, as demand for fresh credits is very subdued and moreover, it’s very tough to find quality borrowers now.

Indian market today was supported significantly by metals (Tata Steel, Hindalco) for better Q4 report card prospect on the back of higher metal prices & demands, although there may be some concerns of incremental RM prices (cocking coal & iron ore). Also, Govt’s recent protectionist steps of imposing ASD for another 5 years helped a lot for the sector.

PSBS (SBI, BOB) were also under demand today ahead of SBI result and some repots that RBI may soon unveil some more NPA resolution policy after its meeting with the FM & other PMO officials on last Friday.

But, Yes bank was under further pressure today along with Axis Bank for the reported NPA divergence with RBI audit. This NPA divergence figure may be reconciled and re-stated in the next QTR, but it also raised some concern and issues of accounting credibility of the Indian corporates/some private banks. Going forward, due to implementation of new INS-AS accounting system, Indian banks may be compelled to report more provisions (loss) for the NPL issues (from FY:18-19).

IT scrips were under pressure today as USDINR lost some ground and telecom scrips were also under great pressure after Idea reported a very subdued numbers; although better than analyst’s estimates.

After market hours today, India flashed its trade balance data for April, which may be subdued at a glance (-13.25B; estimate: -9.90B; prior: -10.44B; YOY: -4.8B). Exports came at 24.64B (prior: 29.23B) and imports at 37.88B (prior: 39.67B). Although, exports grew slowly sequentially/last two months, it’s up by almost 20% (YOY) due to higher shipments of ready-made garments, engineering goods & petroleum products. Imports also grew by almost 49% on YOY basis on the back of higher imports of gold & oil products. Imports of gold has now accelerated after some drops in DeMo period.

Looking ahead, along with NK related geo-political tensions, one may also closely watch the ongoing Ind-Pak virtual war at LOC, which may turn serious at any points of time due to increasing domestic compulsions from both the sides.

USD was under pressure today early in the Asian & EU session following another NK missile (ICBM?) test. In the weekend, NK again tested a long range ballistic missile, which is being suspected as a type of ICBM, capable of hitting the US coast. Although the market is calm so far, we need to watch Trump’s reaction later in the day for any sudden “surgical strike” on NK by US in the coming days. Due to this NK missile game, USDJPY is losing ground and there are some concerns on “risk on” trade later in the day today. Smart money is again flowing to the safety of US TSY bonds and other safe heaven assets like Yen & Gold.

The ongoing cyber attack & its implications all over the globe & also on India may also need to be watched for any serious disruptions and further “risk off” trade.

Also, surge in Oil today may have dampened the USD strength after OPEC & Non-OPEC (Russia) has agreed for an extension of the ongoing production cut agreement for another 9 months (till CY-17 or March’18). Also there were some reports that China may import more US oil. Going forward, after the initial euphoria, Oil may be driven more by actual demand supply dynamics and not by OPEC/Russia jawboning. Friday’s surprise US inventory drawdown may be more seasonal (summer holiday driving) than permanent; also today’s tepid China IIP data may be an indication of subdued growth of around 6% GDP in the coming months and in that scenario, it may not pose well for the oil.

Looking forward, Crude Oil (LTP: 49.25) has to sustain above 49.75-50.25 barrier for further rally towards 53.75-55.35 & 56.75 zone in the coming days; otherwise it may come down again.