Technical & Macro Analysis Of Indian & Global Market----: Nifty Closed Almost Flat After A Choppy Day Of Trading Amid Mixed Global Cues & GST Concern; IT & Pharma Dragged The Market Most; Nifty Lost 0.8% For The “Fed Week”

Technically, Nifty Closed The Weak In A Very Subdued Condition; What’s Next?

Market Wrap: 16/06/2017 (17:00)

NSE-NF (June): 9590 (-11; -0.11%) (TTM PE: 24.27; Near 2 SD of 25; TTM EPS: 395; NS-9588)

NSE-BNF (June): 23443 (+55; +0.24%) (TTM PE: 29.56; Near 3 SD of 30; TTM EPS: 795; BNS-23503)

For 16/06/2017:

Key support for NF: 9580-9530/9505

Key resistance for NF: 9635-9675

Key support for BNF: 23300/23200-23000

Key resistance for BNF: 23500-23650

Time & Price action suggests that, NF has to sustain over 9675 area for further rally towards 9715-9770 & 9825-9865 in the short term (under bullish case scenario).

On flip side, sustaining below 9655-9635 area, NF may fall towards 9580-9530/9505 & 9470-9405 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23650 area for further rally towards 23750-23875 & 24000-24100 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23600-23500 area, BNF may fall towards 23300/23200-23000 & 22900-22700 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9590, almost flat (-0.11%) after making an opening session high of 9627 and mid day low of 9585 in an extremely narrow range of trading in absence of any major cues. Indian market today opened in slight green following tepid global cues.

Asian market was also trading mixed amid subdued global cues. Overnight US market also closed lower amid another day of heavy selling in tech shares after some analysts further downgraded the sector citing stretched valuation and pessimistic outlook. Also, a hawkish Fed stance, taper tantrum may be indicating that era of easy money & lower interest rate may be over and thus all the risk assets (EQ) may be in pressure. Technology sector may be one of the major beneficiaries of the loose monetary policy and thus looking increasingly vulnerable after Fed & other central banks are abandoning easy money policy and in the process of normalization.

Also, another report that Trump’s son-in-law may be under investigation of Muller (US special counsel) for the suspected Russian link. Thus, ongoing US political jitters may be affecting the US/global market sentiment despite some upbeat/mixed US economic data yesterday and Trump’s advance forecast (optimism) about a “super US GDP” for Q2, which will be released on 29^th June (??).

Overall, it seems that Yellen may be well behind the curve, considering the US monetary stance for the last few years; Fed should have shown the present unusual hawkishness 2 years ago, when they were unusually dovish; now US inflation (ex-shelter) is at historical low and contrary to that, Yellen is unfazed with her hawkish stance and that is quite surprising. The flattening of US yield curve may be an indication that economic momentum is waning; market may be concerned about policy mistake by Fed again this time.

Meanwhile, BOJ today flashed its monetary policy as unchanged in the expected line with virtually no change in economic outlook (moderate expansion); although BOJ is optimistic about private consumption. Later, Kuroda’s stance in the Q&A was also neutral / dovish.

Japan (Nikkei-225) was trading in positive as Yen lose some strength (higher USDJPY is good for Japanese export oriented economy); China was also trading higher following some liquidity injection from PBOC this morning, presumably to counter the Fed tightening; recently Chinese market was under pressure for PBOC money market tightening; although PBOC was regularly doing targeted MLF operations.

In Europe, IMF sounded optimistic about EZ growth and EU & Greece reached another debt deal to keep the nation in the ICU by proving another $9.5 bln loan to Greece; (it’s like paying a City credit card debt with an Amex credit card; great story of Ponzi scheme!!). IMF has also expressed some concern over debt laden countries, which may face sovereign downgrade in an atmosphere of reduced monetary policy accommodation and risks from various geo-political uncertainties & trade protectionism. These countries may need some structural resolution to avoid future debt trap.

In EU, although CPI data came as expected, overall inflation data may be still subdued; core CPI tumbled to -0.1% in May (MOM), raising some concern of deflation. This muted inflation pressure may force Draghi to keep the ECB monetary policy in neutral in the foreseeable future (negative for EURUSD). It now seems that UK may be also ready to start Brexit negotiations from Monday as scheduled (19^th June) despite significant political uncertainty.

Back to home, Indian market today may have focused on GST disruptions and ongoing effort for a quick NPA resolution, which may be so far, remains elusive. Due to fear of GST disruptions, various companies are offering significant discounts for their products to clear the stocks ahead of 1^st July and these may also affect the Q1FY18 earnings.

Overall market sentiment was subdued this week after Yellen looked quite hawkish in her stance contrary to earlier expectations of a “dovish hike”; an end of easy money policy together with taper tantrum concern may be not good for EM and India is also one of them.

IT shares were under pressure this week and also today for renewed concern of tech (FAANG) shares in US, citing expensive valuations & poor outlook and US monetary policy tightening. Apart from these, issues of H1B Visa, automations and Trump’s “America First” policy may be also responsible for IT slides. INFY was also under pressure due to ongoing squabbling between founders & present management and some high level management rejig announced today amid founder’s focus for cost cutting (replacement of expensive & experienced personnel with inexpensive & inexperienced fresh junior employee).

Pharma shares were under pressure today on renewed USFDA concern; but Auro Pharma is continuing its rally amid better prospects in EU market, upbeat management commentary and some molecule approval by USFDA recently. RIL closed flat today (after a good rally yesterday) following news of JV with BP regarding E&P investments & probable fuel retailing.

After some steep correction recently, scrips of OMC (BPCL/HPCL/OIL) recovered some lost ground amid news of daily revision of fuel prices from today; GST rate concerns, digital discount and merger/consolidations move by the Govt may be some of the primary reasons behind recent spate of steep corrections for the OMC.

Domestic market sentiment may be also affecting due to Govt’s move to unearth the suspected black money info from Swiss banks. Market may be also concerned for tepid trade balance figure released yesterday, where export slumped by around 9%, whereas Gold import surged; may be Indian savings & unaccounted money is again flowing to the safety of the yellow metals.

Indian Govt may also announce 7-CPC arrears and allowances next week and market may be also concerned about its adverse effect on the fiscal balance.

Today Nifty was supported by Tata Motors (deleverage story regarding Tata Tech stake), Kotak Bank, Cements sector (ACC, Ultratech), SBI, ITC, Indusind Bank, Axis Bank &b RIL to some extent.

Nifty was dragged by Pharma (Lupin/Sun/Cipla), IT (Wipro/INFY/TCS/TECHM/HCLTECH), LT, Maruti, HUL & BOB.

Elsewhere, USDJPY & SPX-500 are now trading around 110.70 & 2422, down by almost 0.18% and 0.35% after subdued and below expected US economic data and Trump’s confirmation (tweet) about Comey/Russian investigation issue.

Today’s US economic data came as:

EVENT ACTUAL FORECAST PREVIOUS

Building Permits (MoM) (May): -4.9% 1.8% -2.5%

Housing Starts (MoM) (May): -5.5% 4.1% -2.8%

Housing Starts (May): 1.092M 1.215M 1.156M

Michigan Consumer Sentiment (Jun): 94.5 97.1 97.1

Michigan Consumer Expectations (Jun) 84.7 87.5 87.7

Overall, today’s US economic data may be quite below expectations and tepid UM consumer sentiment may be again indicating some disappointment among US consumers over visibility of “Trumponomics” rhetoric (tax cut) amid ongoing US political turmoil in WH (Trump). The current week may be termed as “week of the Central Banks” and among them, Fed & BOC looked surprisingly hawkish, which may be an indication of end of easy money policy and risk assets are not looking good amid soft US economic data. All the other major central Banks (BOJ/ECB/PBOC/BOE) may be forced to follow Fed’s normalization process in the coming months.

In another interesting development, Amazon is acquiring Whole Food Markets at $42/share ($13.7 bln deal); WFM is up by around 28% and Amazon is also up modestly by around 1% after initial fall; WFM will operate as a separate brand. . All the other major retailers are down significantly may be for concern of price cut and Amazon’s model of business.

The business model of Amazon being deflationary may add a new headache for Fed as other retailers may be also forced to follow Amazon’s path. Amazon may also use automation technology in such brick & mortar grocery shops to maintain his wafer thin margin to weed out competition and that may be also bad news for US employment.

Technically, SPX-500 (LTP: 2425) now need to sustain over 2414 area for 2440-2445 & 2455-2460 area; in the bigger picture, only consecutive closing above 2460, it may rally further towards 2530-2550 zone in the mid-term.

On the flip side, sustaining below 2414 area, it may fall towards 2395-2370 & 2355 area in the days ahead.