Technical & Macro Analysis Of Indian & Global Market----: Nifty Closed Almost Flat Paring All The Intraday Gains Amid Subdued Global Cues And Concerns For GST Disruptions Despite Optimism Of NPA Resolution & SEBI Deregulation

Market Wrap: 22/06/2017 (17:00)

NSE-NF (June): 9631 (-24; -0.25%) (TTM PE: 24.38; Near 2 SD of 25; TTM EPS: 395; NS-9630)

NSE-BNF (June): 23710 (+16; +0.07%) (TTM PE: 29.86; Near 3 SD of 30; TTM EPS: 795; BNS-23736)

For 23/06/2017:

Key support for NF: 9605-9580/9530

Key resistance for NF: 9725-9775

Key support for BNF: 23650-23500

Key resistance for BNF: 23900-24000

Time & Price action suggests that, NF has to sustain over 9725 area for further rally towards 9775-9825 & 9865-9950/10050 in the short term (under bullish case scenario).

On flip side, sustaining below 9705-9675 area, NF may fall towards 9605-9580 & 9530/9505-9470 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23900 area for further rally towards 24000-24115 & 24250-24435 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23850-23750 area, BNF may fall towards 23650-23500 & 23400-23300 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9631, down by 0.25% after paring all the intraday gains from its high of 9716 and made a late session low of 9617 as market may be unwinding longs or making sell at every rise (sell on rise strategy at record high level considering stretched valuation, a hawkish Fed, slump in oil, various geo-political jitters and above all, domestic concern for GST disruptions and subsequent effect on earnings for not only Q1/Q2FY18, but may be also for subsequent 3 quarters; i.e. entire FY-18.

Market may be concerned that due to de-stocking for concern of input tax credit issues and high probable supply disruptions during the GST implementation phase, Q1/Q2 earnings may be severely affected. Moreover, the intended structural benefits of GST, such as better tax compliance, subsequent higher tax/GDP ratio, seamless trade across the country, improved logistics and shift of business from informal (unorganized) to formal (organized) sector may take significant time, considering the present complex format of the GST. Thus, entire FY-18 earnings recovery story may be also now in doubt.

Today, Indian market opened around 9680, almost 22 points up following mixed global cues; but soon after that rallied quite smartly to around record high on optimism about NPA resolution (RBI/IBC) and some deregulation move by SEBI (relaxed norms for takeover of stressed assets through open offer and direct FII participation). But, weak opening of European market may have dented the sentiment and the market sold off. Also, hawkish RBI minutes and SEBI’s war on P-Notes may have affected the Indian market sentiment today. European market was subdued tracking tumble in oil & energy related shares and UK political/Brexit uncertainty.

Overall, Asian market was mixed today tracking subdued global cues; Overnight US market/DJ-30 closed in negative (-0.27%) amid selling in energy related scrips (slump in oil) and subdued Caterpillar earnings/guidance despite an upbeat US home sales report (strong housing price gain).

Oil was under severe pressure following mixed EIA inventories (higher crude draw neutralized by higher gasoline stocks) and a panic OPEC squabbling about further production cuts; although Iran oil minister was advocating for a further production cut, some of the other OPEC nations may not agree with that idea, citing Iran’s own high level of oil production. Also, ongoing supply glut, Libya & Nigeria production issues and credit tightening may be the primary structural issues for which oil may dip further below $42-40 area, reminding the horror scenario of post Fed hike in Dec’15.

China was trading in upbeat mode following its inclusion in MSCI EM index; but China’s gain may be India’s pain also. Indian market might see some fund outflow. China’s inverted bond yield may be a concern for the health of the overall economy; today PBOC has drained out some liquidity from the money markets, which may be a sign of confidence by the central bank.

In other Asia-Pacific market, Japan closed lower on strength of JPY and some restructuring news of Toshiba’s electrical memory chip unit. The morning comments by BOJ Dy Gov may be termed as dovish as usual but also optimistic on growth & inflation; as a result USDJPY was still losing momentum and drifting lower on the back of subdued US bond yields. USDJPY was now trading around 110.99, down by 0.35% as market is now quite sure that Fed will not hike in Sep and Dec’17 hike may also be in doubt with FFR is now below 50%; the pair is facing big hurdle in the 111.75-112.25 zone and limiting the overall risk-on trade.

Elsewhere, Taiwan index hits record high today after 1990; AU shares were trading higher amid rebound in metals/iron ores despite fall in oil.

NZD shares were trading slightly higher (+0.30%) after RBNZ hold rate at 1.75% as expected with some dovish (accommodative) stance. But overall statement from RBNZ was quite optimistic on NZ growth and soft on NZD strength, which was not expected by the market and thus NZDUSD is now gaining strength (+0.55%).

Today, Bank Nifty got good support from hopes of a quick NPA resolution by RBI IBC mechanism and a report that Govt may request RBI to defer Basel-III norms for the Indian Banks by another year as it may provide the Govt some relief for its obligation of huge recapitalization funds. But, RBI may not agree with this idea as it may cause Indian Bank’s (PSBS) rating downgrade.

Today Nifty was supported to some extent by IT scrips following upbeat guidance by NASCOM for FY-18, brushing aside concern of Brexit & US H1B Visa issues. In addition, Nifty was supported by Grasim, Sun Pharma, Auro Pharma, Ambuja Cement, HDFC, RIL, Yes Bank while it was dragged by HUL, Lupin, LT, Oil & Gas sector (ONGC/GAIL/BPCL) for concern of lower crude oil and Govt’s move to consolidate the sector.

Elsewhere, in European session, FX worlds are very calm & standstill today on option expiry related fixing issues and lack of any meaningful economic data/events. In, UK all the eyes are now on negotiation outcome between conservative & DUP as times are running out fast. Prime Minster Theresa May is now in Brussels for a EU summit, where she is expected to outline UK’s plan for the EU citizen after Brexit, which may be the most contentious issue so far for arriving a meaningful Brexit deal & post Brexit trade accord.

Also, there is some report that Scotland may go for a separate voting on the overall Brexit issue and all these are making UK political climate cloudier & uncertain.

Meanwhile, oil is getting some boost from another desperate jawboning from Kuwait oil minister calling for more support from the OPEC-NOPEC producers to cut more. As par him, oil market will rebalance gradually and OPEC-NOPEC compliance level was at 106% in May. But oil traders may not be convinced still now and WTI-oil is now hovering around 42.75; it need to stay above 43.75-44.25 for any meaningful rally from here; otherwise 42-40 level may come soon resulting in another wave of risk-off sentiment. As par some reports, Saudi Arabia is now targeting oil at $60 before their mega IPO of Aramco (not a good news for the Indian market).

US markets are trading almost unchanged around 2430 (-0.03%) after slightly below estimate initial jobless claims at 241k against expectation of 240k (prior: 238k). In Canada, core retail sales for April (MOM) came upbeat at +1.5% against estimate of 0.7% (prior: -0.1%).

Subsequently, USDCAD sinks and now trading around 1.32311 (-0.75%); USDJPY is now around 111.27, almost unchanged (-0.08%). Also, there is some market buzz that BOC (Canada) may hike as early as July.

Looking ahead, lack of any further meaningful US economic data today, FX market may be driven by US bond yields, movement of oil & US stock market. US 10Y TSY bond yield need to stay above 2.20 for any meaningful strength in USD; otherwise it may again sink and risk-on sentiment may also suffer.

As par some reports, Yellen may not get an extension after Feb’18 and in that scenario, a more hawkish candidate, close to Trump may be appointed to take care of US monetary policy.

Market may also focus on Muller’s investigation issues over Trump as two FBI officials has reportedly told Muller & the senate investigation team that Trump suggested them to share publically that there was no collusion between his campaign team & Russia; although Trump did not give them direct orders to say so.

Also, as par some reports, the closely guarded Trumpcare bill may be revealed today in a do-or-die moment for RNC to repeal Obamacare.

In any way, looking ahead, S&P-500 need to stay above 2450-2465 area for any further rally; otherwise it may come down amid ongoing US political & oil jitters.