Technical & Macro Analysis Of Indian & Global Market----: Nifty Dragged By 0.43% Amid Tepid Global Cues Marked By China Crack Down On High Leverage & Domestic Concern Of GST & NPA Blues

Nifty closed the week almost flat ahead of long weekend, marked by GST concerns, RBI minutes, hopes for a quick NPA resolution by IBC/RBI mechanism and prospect of better monsoon.

Market Wrap: 23/06/2017 (17:00)

NSE-NF (June): 9592 (-41; -0.43%) (TTM PE: 23.73; Near 2 SD of 25; TTM EPS: 395; NS-9375)

NSE-BNF (June): 23537 (-192; -0.81%) (TTM PE: 29.61; Near 3 SD of 30; TTM EPS: 795; BNS-23543)

For 27/06/2017:

Key support for NF: 9560/9530-9495/9450

Key resistance for NF: 9655-9705/9725

Key support for BNF: 23500-23400/23300

Key resistance for BNF: 23825-23900/24000

Time & Price action suggests that, NF has to sustain over 9675 area for further rally towards 9705/9725-9775 & 9825-9865 in the short term (under bullish case scenario).

On flip side, sustaining below 9655 area, NF may fall towards 9580/9560-9530 & 9495-9450 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23825 area for further rally towards 23900-24000 & 24115-24250 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23775-23600 area, BNF may fall towards 23500-23400 & 23300-23200 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9592, slipped by almost 0.43% after making an opening minutes high of 9640 and mid-day low of 9574. Nifty Fut (June) today opened around 9640, almost flat tracking subdued global/Asian cues Amid China Crack Down on Its Banking NPA & high leverage lending for oversees assets of certain big Chinese corporations.

Indian market may have under some stress today ahead of GST blues as implementation day is coming very close on 1^st July and overall preparedness may not be enough. Indian market today was also focused on NPA resolution (RBI/IBC); but market may be increasingly concern about efficacy of the overall resolution process and reservation about huge hair cuts by the Banks & certain policy decisions/restrictions by the Govt/RBI.

Incidentally, most of the big stressed asset belongs to steel/metals, telecoms & power projects apart from some textile companies. Some of the steel, telecoms and also power projects have questions of viability and moreover some policy paralysis and judicial activism (2G & coal mines license cancellation) may also be responsible for the present NPA mess; affected companies may have to invest huge fund for such license cancellation & rebidding process.

On the broader market midcaps were under visible selling pressure and corrected more than 1% today; overall advance/decline ratio was at 1:4; in Nifty, out of 51 scrips, only 12 were in green today. Initially, Pharma & IT gave some support amid optimism about passage of US health care act and NAMO’s visit to US on Monday. Indian PM may discuss the contentious issue of H1B Visa with US Prez Trump directly; market may be looking for some relief on that front.

Today, Nifty was supported by Sun Pharma (Taro open offer issue), Auro Pharma (US FDA product approval; although some inspection is still running in one of its plant), Powergrid, INFY & RIL to some extent. RIL was in limelight for the last few days as the company has withdrawn the arbitration case against the Indian Govt along with its partner BP, which may pave the way for getting the market price of its produced gas (NG) in India.

Nifty was dragged by BOB, SBI, HDFC Bank, Tata Motors & TCS. As par some reports, Tata Tele has asked the Govt/Telecom Authority & its lender (SBI) for some bailout packages and this may be one of the reasons today behind sudden sharp fall of the scrip apart from other IT related issues.

PSBS were under severe pressure today after reports that Govt may not recapitalize some of them further and they have to approach the capital market for their fund raising issues (PNB, BOB, Canara Bank, Indian Bank, Syndicate Bank, Vijaya Bank etc).

Coal India got some boost, after reports of coal allocation policy and delay of CPSE-ETF fund launch. SBI was under pressure after reports that Indian home ministry has objection of Essar Oil-Rosneft deal for the Vadinar port strategic location issues; this deal may be vital for NPA resolution for a host of Indian banks like SBI, PNB, ICICI, IDBI, Axis, LIC, Syndicate & IOB for their huge exposure in debt laden Essar group.

Due to concern for an effective & quick NPA resolution mechanism, Electrosteel Steels Ltd slipped as much as 7.9%, while Bhushan Steel Ltd fell as much as 10% after reports that lenders have decided to start insolvency proceedings against the companies along with Essar Steel.

Fortis Healthcare Ltd slumped as much as 15%, its lowest in more than six months, after IHH (Malaysia) confirmed that it is not engaged in any negotiations with Fortis currently due to concerns of legal issues for the Daichi-Singh brothers’ case for erstwhile Ranbaxy.

Global Market Wrap:

Meanwhile European market is now trading in a softer tone after subdued/mixed PMI data from France and Germany & EU. After the Indian market close, EU market drifted lower tracking some reports that ECB is finding it increasingly difficult to buy eligible bonds; i.e.; there is scarcity of eligible QE bonds and thus ECB may think of some tapering in the days ached.

In UK, it’s “Brexitversary” today as UK voters decided quite surprisingly in favour of Brexit on 23^rd June’ 2016 on the belief that an exit from EU may be good for UK’s health, currency & economic independence. But, now reality of Brexit & UK political uncertainty may be forcing the Britons for a 2^nd thought as UK may also lose the status of EU financial capital soon.

In UK, political tensions may be increasing day by day as DUP is refusing for a quick 36-hrs negotiations with Theresa May’s Conservative party for a coalition Govt. As par some reports, DUP is demanding for a GBP 2 bln fiscal stimulus package for spending in health care & infrastructure in support for their 10 seats.

Although, a negotiation may happen by today or by this weekend, given the political compulsion of both the parties, going forward such political troubles may translate into UK’s economic chaos between Brexit uncertainty and a hung Parliament or a fragile coalition Govt at the best. Thus, BOE may be compelled to stay neutral for the foreseeable future despite some MPC member’s hawkish jawboning.

Elsewhere, US stock futures were also indicating of a flat opening after Fed stress results on the Banks showed all of them has passed through minimum thresholds except Morgan Stanley on account of excessive leverage. Looking ahead, market may focus on further developments of Trumpcare & Muller’s investigation issues over Trump apart from US PMI, new home sales data and speech from Fed’s Mester.

Meanwhile lower than expected Canadian CPI has made the USDCAD higher (+0.50%); CPI for May flashed as 0.1% against estimate of 0.2% (prior: 0.4%) on MOM basis. On YOY basis, CPI came as 1.3% against estimate of 1.5% (prior: 1.6%). The tepid CPI data may also force the BOC to rethink their hawkish strategy as it’s now increasingly difficult for the central banks to meet their inflation/growth/jobs equation in the changing world of structural dynamics & technology (automation).

Asian Market Wrap:

Globally, China market was under pressure today after PBOC drained out almost CNY 50 bln by reverse repo and a report that China’s banking regulator has increased its scrutiny on the banks for some of the nation’s high profile corporate borrowers for acquiring overseas assets. But China market was closed flat today as Govt may have intervened in the market as par some reports.

The Chinese crack down on high leverage borrowings & NPA has affected the overall China & Asian/Global market sentiment as market may be concerned that it’s just a beginning and going forward, increasing regulatory tightening may affect China’s financial markets.

Chinese Govt may be also under pressure from MSCI to reform its market to the global standards and market may be also concerned about China’s political influence on overall Chinese economy & the financial market ahead of its Communist Party meeting.

Japan (Nikkei-225) was also closed almost flat (+0.11%) as Yen got some strength amid upbeat Mfg PMI data & economic assessment. Japanese preliminary PMI for June came at 52 against estimate of 53.4; (prior: 53.1). Although the PMI is bit lower, it’s still above boom/bust line of 50 for the last few quarters and the underlying composition may be also indicating some inflation pressure on Japanese economy, which was so far elusive for the BOJ.

South Korean market was upbeat after the country’s President requested China to lift its restrictions against the nation’s business after US installed the anti-missile defense system (THAAD) which was uncomfortable to China and it has stopped South Korean firms to do business with China. Also, China had stopped tours of high spending Chinese visitors to South Korea.

Australian shares were also closed flat amid pressures on banks & financials following a new tax imposed on them by the South Australian Govt in addition to some levy already imposed on them by the Australian Federal Govt last month; but health care & telecoms has helped the market today.

USDJPY lost some ground early in the morning today tracking upbeat Japanese economic assessment repot and Mfg PMI data; market may not be convinced with Yellen’s optimism about US economy and may focus on her speech in London on 27^th June. Also subdued US bond yields may be affecting USD apart from most of the FOMC speakers’ stance so far for a slow pace of rate hike.

The two Fed Presidents who spoke yesterday, Powell did not touch on monetary but Bullard (who is a non-voter this year) felt that the projected path of rates was unnecessarily aggressive. Looking ahead, Markit economics' manufacturing and service sector PMI reports will be released today along with new home sales in US. Also, Fed President Mester is scheduled to speak today, who is known hawk and market may keenly watch these data/events.

Meanwhile European market opened in a softer tone after subdued/mixed PMI data from France and Germany & EU. After the Indian market close, EU market drifted lower tracking some reports that ECB is finding increasingly difficult to buy eligible bonds; i.e there is scarcity of eligible QE bonds and thus ECB may think of some tapering in the days ached.

US market update:

USDJPY is trading almost unchanged after mixed US economic data today; PMI for June (preliminary) came as quite subdued and new home sales printed as slightly upbeat, supported by all time high median home prices (+16.8% YOY).

Today, US MFG PMI (June) flashed as 52.1 against estimate of 53 (prior: 52.7); Service PMI came as 53.0 against estimate of 53.7 (prior: 53.6). PMI tumbled to 9-months low and may be now catching down the collapse of hard data, which is now at 13-month low.

Overall, subdued PMI data from China to Europe & USA may be indicating China’s financial tightening and risk of an imminent stagflation (higher inflation & lower growth). As par PMI data, Q2 US GDP is now expected to come around 1.5%% (annualized) or 0.4% at quarterly run rate or just over 2% with allowance while there may be some upward pricing pressure on goods & services.

Market may be expecting the Q2 US GDP at around 3% this time; as par PMI survey data, NFP for June may come around 170k; overall this PMI data may not be good news for Yellen scrambling for another hike in 2017.

New home sales for May came at 610k against estimate of 597k (prior: 593k) with record median prices for new home at $345800 against $296000 in May’16. This is a good number and may be indicating high demand for housing.

USDJPY is now around 111.27, almost flat and looking ahead 111.75-112.25 may be a big hurdle for the pair with support at around 110.50-109.15 ahead of Feds’s Mester, a known hawk. Any indication of dovish stance from Mester can cause the USDJPY to drift lower and break the 110.50 barrier.

Meanwhile, EURUSD is now catching the bid and trading higher around 1.12 (+0.45%) on optimistic view of Draghi about EZ economy and news of ECB QE bond scarcity due to eligibility criteria; ECB may think of some gradual tapering. For EURUSD, 1.12080 is now the immediate hurdle and sustain above that 1.13 area may come as the day proceeds.