Technical & Macro Analysis Of Indian & Global Market----: Nifty Surged By Another 66 Points To Close Above 9500 Milestone As Market Salutes “Modinomics” In Style At Its 3rd Anniversary

Market Wrap: 16/05/2017 (17:00)

NSE-NF (May): 9519 (+66; +0.69%) (TTM PE: 24.15; Near 2 SD of 25; TTM EPS: 394)

NSE-BNF (May): 22947 (+120; +0.52%) (TTM PE: 31.48; Above 3 SD of 30; TTM EPS: 728)

For 17/05/2017:

Key support for NF: 9495-9445

Key resistance for NF: 9560-9600

Key support for BNF: 22925-22825

Key resistance for BNF: 23000-23075

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9600 area for further rally towards 9640-9680 & 9770-9865 in the short term (under bullish case scenario).

On flip side, sustaining below 9580-9560 area, NF may fall towards 9495-9445 & 9400-9340 area in the short term (under bear case scenario).

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

On the flip side, sustaining below 22950 area, BNF may fall towards 22825-22720 & 22600-22400 area in the near term (under bear case scenario).

Nifty Fut (May) today closed around 9519, galloped by almost 0.69% after making a late day high of 9532 & an opening session low of 9458. Indian market today opened almost flat following mixed global cues. Overnight, US market closed almost 0.41% higher amid rally in tech (cyber security shares due to ongoing cyber attack, suspected from NK origin) & energy related shares (rally in oil). Although yesterday, oil has almost lost half of its intra gain at EOD due to supply glut & tepid demand concern; later Oil was supported by some upbeat comments about future demand-supply dynamics by IEA. Going forward, response of other OPEC & Non-OPEC oil producing countries at the scheduled 25^th May meeting may decide the future course of oil price (Russia & Saudi Arabia is ready for a nine month extension till March’18 for the ongoing production cut agreement, scheduled to end on June’17). A higher oil price of above 55-60$ may not be good for the Indian economy.

In the morning Asian session, China/HSI market is under pressure for renewed concern of the health of Chinese economy after various soft economic data (tepid IIP, retail sales, PPI etc) and supply glut of iron ore, which may be a proxy for its growth. Going ahead, China’s GDP may be reported around 6.5-6%, which is substantially lower than around 8% barely two years ago. But, ongoing OBOR/Silk road initiatives by China may be also positive for metals & cements sectors.

Overall USD was under pressure after allegation of ISIS secret sharing (classified information) by Trump with the Russian foreign minister on his recent US tour. Over the last few weeks, US political risks are increasing over various Russia related allegations of Trump and all these may be distracting the trajectory of “Trumponomics” (US tax reform, fiscal/infra spending etc) and thus “risk on” sentiment (reflation trade) may be “turned off” in the coming days. This coupled with some hawkish stuff from BOJ Kuroda today and recent spate of upbeat economic data from EU has made the USD weaker. Also due to recent soft US economic data, market may be also somehow skeptical about June rate hike by Fed. Technically, one may watch 113-112.50 & 114.50-115.50 area in USDJPY closely for any “risk off” or “risk on” sentiment.

But Indian market today shrugged off all the global concerns on the 3^rd anniversary day of “Modi Sarkar” and salutes “Modinomics” in style to close the Nifty above the milestone of 9500 (another new closing high). Although, 26^th May is the official anniversary for 3 years of Modi Govt, today, it may be the unofficial anniversary date as election result was announced on 16^th May’2014. Overall, Nifty has gained by around 32% and mid/small caps were almost doubled for this 3 years of “Modinomics”; now earnings need to catch up with the expectations of the market, which is looking for 20-25% EPS growth over FY: 17-18; so far Q4FY17 earnings were mixed and going forward, 25% CAGR for FY-18 may also be looking little difficult, considering various factors such as GST disruption and tepid private investments & subdued trend of consumer sentiment/consumption. Also, India’s issue of twin balance sheet (Banking NPA & stressed corporate balance sheet) may be a problem.

Domestic market today got a boost from IMD’s announcement that monsoon is going to hit southern Kerala cost on 30^th May, 2 day in advance and comparatively better asset quality report from PNB (although slippages increased QOQ). But it now seems that IMD is now sticking to its earlier projection of normal monsoon (96% of LPA) instead of above normal monsoon this year (100-106% of LPA).

Overall huge liquidity support, specially from the domestic investors (stable SIP) after DeMo & less spillover effects of DeMo blues, stable Govt (low political risk), incremental reforms, benign inflation (although core CPI is still sticky), lower interest rate/MCLR (although base lending rate may be still high), hopes of further rate cuts by RBI in the coming months may be some of the primary factors for the stupendous market rally since Dec’16 low; Nifty has rallied more than 20% from post DeMo Dec’16 to till date.

Apart from stable macro economy & appeal of 4-D (demand, demography, democracy & deregulation), mixed Q4FY17 earnings (so far) and hopes of earnings recovery in FY: 18-19 at 20-25% CAGR may be also supporting the stretched valuation multiple (TTM PE>24) of the Indian market in this liquidity driven rally, where basically demand is more than supply for quality scrips at this point of time. Also, lack of any major domestic negative news & geo-political event/global jitters may be also helping the overall global as well as the Indian market. Going forward, China jitters & US political risks may be some of the serious global headwinds for the “risk on” trade.

Indian market sentiment may be also boosted by a recent report of MS, projecting a Sensex target of 33000 by Dec’17 (bull case 39000; bear case 24000) on the back of strong fund flows, resumption of a new M&A cycle and earnings recovery (24% CAGR from earlier projection of 15% for FY-18) with better EBITDA margin. MS sees Indian economy to enter into a “productive growth phase” and real GDP may rise to around 7.9% by Dec’17 driven by external demand (exports), improving corporate balance sheet and private capex recovery. Looking forward, India may report higher GDP no with past revisions because of change in methodology & base year for WPI, which may be basically interpreted as proxy for PPI.

But, stressed assets resolution may be a big challenge for the Indian economy and despite NPA ordinance, it may be very tough to find buyers of such huge stressed assets, even at steep “haircuts”, because of project viability issues itself.

Today PSBS has supported the market to a great extent on the back of earnings recovery, stable assets, hopes of consolidation etc; also metals are another supportive sector for the market in addition of consumption sector. But other sectors like IT, Pharma, Telecom, which are underperforming consistently due to structural issues, need to catch up also with the leaders; otherwise the ongoing rally may be at risk as overall valuations are extremely expensive now; Nifty TTM PE is approaching 2 SD of 25, which is historically a bubble zone.