Technical & Macro Analysis Of Indian & Global Market----: Nifty Dragged By 0.63% Ahead Of CPI Data Amid Tepid Global Cues & Fed’s Taper Tantrum Concern And Fall In Banks Tracking Farm Loan Waiver & Telecom NPA Issues

Market Wrap: 12/06/2017 (17:00)

NSE-NF (June): 9622 (-61; -0.63%) (TTM PE: 24.34; Near 2 SD of 25; TTM EPS: 395; NS-9616)

NSE-BNF (June): 23465 (-175; -0.74%) (TTM PE: 29.52; Near 3 SD of 30; TTM EPS: 795; BNS-23465)

For 13/06/2017:

Key support for NF: 9570-9530

Key resistance for NF: 9655-9715

Key support for BNF: 23340-23150

Key resistance for BNF: 23650-23750

Time & Price action suggests that, Nifty Fut (May) 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 area, NF may fall towards 9595/9570-9530 & 9490-9415 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 area, BNF may fall towards 23415-23340 & 23150-23050 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9622, dragged by almost 61 points after making an opening session high of 9642 and day low of 9602, tracking subdued global cues and fall in banking shares amid concern for farm loan waiver and telecom NPA. Overnight, on Friday US market closed mixed amid sudden selling in FANG/Tech stocks in the last hour on concern of lofty valuations & subdued outlook. But, banks & financials has supported the SPX-500 to some extent tracking roll back of Dodd Frank rules.

Early morning Asian market cues were negative amid fall in USDJPY on “dovish hike” concern by Fed this week, ongoing UK & US political squabbling and reports of some fake Chinese economic data from some provinces. Overall, although Comey’s testimony last week lacks the necessary fire power for an immediate impeachment of Trump, it may open a barrage of “war of words”, similar testimony of Trump and further investigations of some of the allegations made by Comey. In UK, a hung Parliament & a coalition Govt may only increase the political uncertainty, which may also affect the global risk-on sentiment, which is so far limited only to GBP. EU market was also in pressure amid fall in tech shares and UK’s stance of hard Brexit negotiations.

This week is basically for the central bakers starting with Fed on 14^th June followed by SNB, BOE & BOJ. Market is expecting a dovish hike by Fed this week; but overall projections, US economic outlook and Fed’s statement may matter most. As recent spate of US economic data is quite soft and there is no visibility of Trumponomics, Fed may not indicate any definitive guidance for a Sep or even Dec rate hike; instead Yellen may indicate a gradual tapering of B/S from Dec’17 onwards and thus risk-on trade may be in question. For the market, B/S tapering may be more important than couples of rate hikes and it may be the real normalization, which may made the risk trade very vulnerable (Taper tantrum).

Amid all these global geo-political headwinds and Fed concern, Indian market today basically witnessed some profit booking as valuations are quite stretched and there may be also some apprehensions for GST disruptions. Also, ongoing bank loan waivers in UP & MH may trigger similar populism ahead of series of state elections in 2018 and may also influence the 2019 general election. Although, as a result of state sponsored farm loan waiver, PSBS may be benefited in the short term as state will clear the NPA, in the longer term such farm loan waiver may also jeopardize the credit discipline of the system as borrowers may wait for next election for their loan waiver. Thus, PSBS & MFI were in some pressure today. Also, such farm loan waiver may increase the combined fiscal deficit of the Indian economy (negative for Indian sovereign rating).

Also, there was a meeting today between FM & the PSBS for NPA resolution issues, where Govt has raised serious concern for telecom NPA/NPL as the sector is in significant stress. Govt has summoned the chiefs of all the banks, which has significant telecom loan exposure (SBI/AXIS/ICICI etc) and thus these scrips were also in some pressure today.

Market was also expecting some quick resolution mechanism of the NPA woes after so called NPA ordinance; but in reality the resolution of NPA may take significant time period as the viability of various projects may be questionable itself; so simple change of management/ownership will not work (except in cases of some willful defaults). Govt is now basically pushing the NPA resolution ball to the RBI/Banks by formulating various committees and thus market may be apprehending that actual NPA resolution, revival of corporate credit and private investments may take significant time; there is no readymade solution of this legacy issues.

In the meantime, India has just flashed its CPI for May at 2.18% against estimate of 2.60% (prior: 2.99%), helped by fall in food inflation (pulses & vegetables). But Core CPI for May came at 4.7% (? 4.2%) against 4.5% in April, which may be termed as sticky and may not comfort Patel/RBI.

IIP (Apr) came at 3.1% against estimate of 3% (prior: 2.7%). Although, it sounded double cheers (lower CPI & upbeat IIP), a higher IIP may also calm the nerves of MPC as it may be implying that GDP may not fall abruptly in Q1FY18.

Overall CPI data may be quite upbeat, considering RBI’s inflation trajectory and this may put more pressure on the MPC to cut 0.25% in Aug’17. But, RBI being data dependent and an inflation hawk, may watch more macro data for Q1 & Q2FY18 before changing their neutral stance to accommodative again; sudden dips in Q4FY17 GDP may be also transitory. Banks also need to transmit more rate cuts to its borrowers and until small savings rates in India will not aligned with GSEC yields, Banks may not be in a position to offer lower lending rates than its FD, irrespective of any further RBI repo rate cut.

Another factor may be any abrupt fall in pulses & vegetables due to more production (ample rains & demand/supply mismatch; DeMo factor etc) may be bad for the farmer’s community and we may see more demands for farm loan waivers in the coming quarters.

Elsewhere, Crude is trading around 46.40 after taking some supports from 45.15 area amid concerns for demand & supply mismatch and some oil pipeline blasts in Nigeria. Technically, Crude needs to sustain over 46.95-47.85 area for any further rally towards 49.50-50.50 & 52 zone; otherwise it may again fall from this dead cat bounce and sustaining below 45.15 zone, may further fall towards 43.75-42.15 & 39.25-38.15 in the coming days.