Market Wrap: 08/06/2017
(17:00)
NSE-NF (June): 9670
(-10; -0.10%) (TTM PE: 24.42; Near 2 SD of 25; TTM EPS: 395; NS-9647)
NSE-BNF (June): 23536
(-24; -0.10%) (TTM PE: 29.61; Near 3 SD of 30; TTM EPS: 795; BNS-23536)
For 09/06/2017:
Key support for NF: 9630-9530
Key resistance for NF:
9715-9750
Key support for BNF:
23450-23250
Key resistance for
BNF: 23750-23875
Time & Price action suggests that,
Nifty Fut (May) has to sustain over 9750 area for further rally towards 9825-9865
& 9930-10050 in the short term (under bullish case scenario).
On flip side, sustaining below 9730-9715
area, NF may fall towards 9630/9595-9530 & 9490-9380 area in the short term
(under bear case scenario).
Similarly, BNF has to sustain over
23700 area for further rally towards 23875-24000 & 24100-24150 area in the
near term (under bullish case scenario).
On the flip side, sustaining below
23650 area, BNF may fall towards 23450-23250 & 23050-22950/22750 area in
the near term (under bear case scenario).
Nifty
Fut (June) today closed around 9670, down by just 10 points after making an
opening minutes high of 9705 and late day low of 9660 after a lack luster day
of trading ahead of some global concern of UK election, ECB meet (Super Thursday)
and the congressional testimony of Comey. Domestic market may be also not so
much convinced about any Aug rate cut by RBI, being data dependent &
neutral (owlish/cautious & watchful). Also, market may be concerned over any
GST disruption worries ahead of 1st July schedule date of roll out,
with 3 weeks in hand and overall preparedness may not be enough yet.
Indian
market today opened almost flat (+5 points) following mixed global cues. Overnight US market closed in slight positive (+0.18%)
after Comey’s prepared statement showed less damaging revelations, which market
does not know. But energy related shares were under pressure after surprised US
inventory buildup and some concern over viability of OPEX-NOPEC agreement over
the current fragile Middle East (GCC-Qatar/Iran) geo-political tensions &
diplomatic battles. Ahead of ECB today, there was also some draft leakages
about possible Draghi statement highlighting pessimistic inflation first and
then optimistic growth in EZ, which also resulted a significant volatility in
the EURUSD & the overall market. But, eventually, USD is now getting some
strength as market cheered Comey’s initial prepared statement.
In the morning, Japan GDP flashed as little subdued, pushing Yen
lower; but upbeat trade balance data from China has supported the China/HIS/Asian
market sentiment and metals to some extent in the early trade.
Although, global market was upbeat about Comey’s prepared
statement as it has no adverse comments about Trump, which may be constructed
as a serious offence of obstructing justice against Trump, the actual testimony
or questionnaires by senate today may change that equation if Comey suggests
any reference of that (possible obstruction of justice by Trump).
Elsewhere in UK, it’s now almost certain that Theresa May’s conservative
party will win convincingly by almost 10% margin in today’s UK poll. But some
element of uncertainty may be still there as opinion polls can go wrong
terribly in UK, where Brexit referendum opinion polls may be a good example.
There may be also some doubt about Theresa’s own fortune this time. In any way,
Conservative party is expected to win 340-350 seats, which will provide Theresa
a comfortable majority for a favourable Brexit negotiation (soft Brexit) with
EU authorities. If conservative party will win by this majority or better than
this no, then expect a risk-on relief rally; anything less than this may cause
some volatility.
Back
to home, although overall tone of RBI yesterday was less hawkish than expected,
a rate cut in H1FY18 may be still not sacrosanct as MPC will watch various
macro data (CPI/GDP) more carefully before changing their stance from neutral
to accommodative again. Apart from macro data & progress of monsoon and GST
implementation, one of the major factors against any rate cut in Aug or FY-18
may be the hawkish Fed, which is fast normalizing its policy rate and may even
began to taper its B/S. Also simple rate cut even by 0.50% by RBI in FY-18 may
not accelerate GDP growth and corporate earnings as the banks are not in a
position to transmit further and the issue of corporate stress, creation of
incremental demands and revival of private investments may need some structural
resolution. In the past 2-3 years, corporate earnings did not reflect any RBI
rate cut benefit due to various structural issues.
Govt
may be also very concerned about telecom sector loans and trying its best that
the same does not follow the NPA woes of the steel/infra sector. Market may be
also concerned that RBI may force the banks to recognize & resolute some
large NPA from the B/S by taking a onetime hair cut (waive off).
Housing
finance companies may be benefited to some extent as a result of lower
provisioning weightage on certain category of housing loans; but considering the
steep recent rally of the related scrips, the same may be discounted by the
market to a great extent.
Today
Nifty was supported by HDFC (home loan relief by RBI), Indusind Bank and Pharma
scrips and it was dragged by IT (TCS/INFY for concern of lower EBITDA/rate
discount), LT, Gail/BPCL (GST worries/digital discount?), ICICI/Yes Bank, RIL,
ITC, SBI & ONGC.
PSBS
were under pressure after Moddy’s expressed concern over their financial health
and pointed out that it may take another 2-3 years for them to stand on their
own feet, which are so far living on the Govt life line.
As
on today Nifty EPS for FY-17 is around 395 against FY-16 figure of 370,
translating just 6.78% growth against earlier market expectations of 10-12%
CAGR. For a market, where earnings are growing around 7% on an average for the
last few years, a valuation multiple (P/E) of above 24 may be extremely
expensive despite hopes for a double digit CAGR in EPS (15-20%) for FY-18. At this
run rate, projected FY-18 EPS may be around 418 and in that scenario, FWD Nifty
P/E of above 23 may also be stretched against average FWD P/E of around 18-20.
NIFTY
|
Mar '16
|
Mar '15
|
Mar '14
|
Mar '13
|
Mar '12
|
FY-12-16
|
FY-15-16
|
AVG
|
AVGR
|
SGR
|
PROJ(%)
|
FY-17
|
FY1-8
|
NIFTY
|
7738.4
|
8491
|
6704.2
|
5682.55
|
5295.55
|
46.13
|
-8.86
|
6543.33
|
18.26
|
10.64
|
7.89
|
8349.30
|
9008.42
|
PE
|
20.89
|
22.7
|
18.86
|
17.89
|
18.74
|
11.47
|
-7.97
|
19.55
|
6.87
|
3.26
|
1.26
|
21.15
|
21.42
|
EPS
|
370.44
|
374.05
|
355.47
|
317.64
|
282.58
|
31.09
|
-0.97
|
332.44
|
11.43
|
6.80
|
6.26
|
393.62
|
418.26
|
AVG PE
|
20
|
20
|
20
|
20
|
|||||||||
FAIR VALUATION
|
7409
|
7481
|
7872
|
8365
|
|||||||||
ACTUAL EPS CAGR(%)
|
-0.97
|
5.23
|
11.91
|
12.41
|
|||||||||
Actual FY-17 EPS
|
395
|
Also
for Bank Nifty, actual FY-17 EPS may be around 795, if NSE data is correct or updated
as of now. This is against FY-16 EPS of around 900, which translates a degrowth
of almost 11.64% (if I am not wrong!!). For the last few years, average CAGR of
Bank Nifty may be around 8%, but for the last two years, average CAGR may be
around (-) 8.5% due to huge NPA provisions. Thus, a TTM P/E of above 29 for
Bank Nifty may also be very expensive despite positive EBITDA, because actual
NPA resolution is not happening as expected. At this run rate, projected FY-18
EPS may be around 739 against my earlier estimate of 940-980; even if FY-18 EPS
will be around 886 (739+940+980/3), FY-18 FWD PE may be around 26.5, which is
still on the higher side of its median P/E of around 20.
INDEX
|
Mar '16
|
Mar '15
|
Mar '14
|
Mar '13
|
Mar '12
|
FY-12-16
|
FY-15-16
|
AVG
|
AVGR
|
SGR
|
PROJ(%)
|
FY-17
|
FY1-8
|
BANK NIFTY
|
16141.7
|
18206.7
|
12824.8
|
11334.5
|
10269.8
|
57.18
|
-11.34
|
13158.95
|
22.67
|
13.29
|
9.73
|
17711.90
|
19434.84
|
PE
|
17.94
|
19.01
|
14.31
|
13.88
|
15.42
|
16.34
|
-5.63
|
15.66
|
14.60
|
4.80
|
4.46
|
18.74
|
19.58
|
EPS
|
899.76
|
957.74
|
896.21
|
816.61
|
666.01
|
35.10
|
-6.05
|
834.14
|
7.87
|
7.25
|
4.46
|
939.88
|
981.80
|
AVG PE
|
20
|
20
|
20
|
20
|
|||||||||
FAIR VALUATION
|
17995
|
19155
|
18798
|
19636
|
|||||||||
EPS CAGR(%)
|
-6.05
|
6.87
|
9.75
|
22.61
|
|||||||||
Act FY-17 EPS
|
795
|
||||||||||||
CAGR(%)
|
-11.64
|
||||||||||||
PROJ FY-18 EPS
|
739
|
REVISED
|
Meanwhile,
as expected ECB is absolutely neutral on its rate/QE action; but from the overall
tone of confused Draghi (mix of dovish & hawkish), it seems that ECB is optimistic
on growth, but pessimistic on inflation and thus in no mood for any QE tapering
indication as was expected by some market participants. In one word, Draghi is
sounded quite dovish today; but in reality, ECB will act only if Fed goes for
Sep/Dec rate hike along with B/S tapering in order to keep the present rate
differential between EUR & USD; until then Draghi may be on the wait &
watch mode. After the initial sell off, EURUSD is recovered to some extent as
market may be assuming that GDP rate of EU may surpass the US by next few years
amid growing US political jitters and soft economic data.
Technically, EURUSD (1.1208) is now on
the way for 1.11821 and sustaining below that should target the area of
1.1130-1.11122; consecutive closing below 1.11, may also invite the zone of
1.09522-1.0840 by next week ahead of Fed.
SGX-NF
BNF
EURUSD
EURUSD
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