Technical & Macro Analysis Of Indian & Global Market----: Nifty Finished The Day Almost Flat Amid Tepid GDP, Mfg PMI, Mixed Auto Sales Data & Concern Of GST Disruption And Hopes Of RBI Rate Cut/Dovish Stance; Global Cues Was Also Subdued Ahead Of US Job Data

Market Wrap: 01/06/2017 (17:00)

NSE-NF (June): 9631 (+5; +0.05%) (TTM PE: 24.34; Near 2 SD of 25; TTM EPS: 395; NS-9616)

NSE-BNF (June): 23289 (-33; -0.14%) (TTM PE: 29.32; Near 3 SD of 30; TTM EPS: 795; BNS-23310)

For 01/06/2017:

Key support for NF: 9595/9560-9525/9475

Key resistance for NF: 9645-9680/9700

Key support for BNF: 23150-22950

Key resistance for BNF: 23400-23500

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9680-9700 area for further rally towards 9725-9770 & 9825-9865 in the short term (under bullish case scenario).

On flip side, sustaining below 9660-9645 area, NF may fall towards 9595/9560-9525 & 9475-9395 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23400 area for further rally towards 23500-23650 & 23875-24000 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23350 area, BNF may fall towards 23150-22950 & 22750-22550 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9531, almost flat in another day of consolidation after making a day high of 9645 and session low of 9596. Indian market today opened almost flat following mixed global cues. Overnight US market also closed almost flat, but off the lows following mixed economic data (poor pending home sales; revised/corrected Chicago MFG PMI data mess). US market was under some pressure due to guidance warning from BOAML & JPM (Banks) and overall soft economic & inflation data. Fed’s June rate hike may depend on Friday’s NFP data and that too may be a “one off dovish hike” for 2017, if Fed actually hike. Also, Beige book commentary was not so much upbeat about overall US economy; although Fed sees some inflationary pressure.

In the morning Asian session, China surprised the market with a steep devaluation fixation of USDCNY around 6.80, apparently to gain control over the Yuan to prevent outflow and flush out the bears (huge short positions). China market was down for strength in Yuan, but Japan was up due to some strength in USDJPY and upbeat PMI data. Also, today’s tepid Caixin MFG PMI data from China below boom/bust line of 50 has kept the pressure on China market for concern of economic slowdown. The PMI data flashed as 49.6 for May against estimate of 50.1 (Prior: 50.3); this being a private PMI data, market believed it more than the Govt data and thus the Chinese recovery story may be in doubt.

Amid all these global concerns, India’s Markit Mfg PMI data also came below market expectation today after yesterday’s terrible Q4FY17 GDP (6.1%), which derailed the country’s fastest growing economy tag in the world to China, which reported a Q4GDP of 6.9%. Today’s India’s Mfg PMI for May flashed as 51.6 against estimate of 52.7 (Prior: 52.5); the data is at 3 months low. Thus a tepid GDP & PMI data may be again indicating some stress in the economy going on after the DeMo led initial disruption.

But, a combination of lower CPI (2.99% for April) and lower growth may also force RBI to change its stance from neutral to accommodative again and thus market may be also expecting some dovish stance by Patel & MPC in its forthcoming policy meet on 7^th June. Market may be expecting that, even if RBI does not cut in June, it may certainly act in Aug, if economic activity will not rebound.

But, considering the overall scenario like sticky nature of core inflation (4.5-5%), actual quantum & distribution of monsoon, transitory effects of the DeMo & GST, 7-CPC arrears & its effect on the inflation and hawkish Fed, RBI may be continue on the sideline till H2FY-18. Above all, there are lack of quality borrowers in the system and overall credit growth is very tepid despite banks are flush with funds. Stressed corporates & huge banking NPA (problem of India’s twin balance sheets) may be one of the major issues behind subdued credit growth & private investments. Thus, RBI may not cut in the coming months as it may serve no purpose. Also, as long as India’s high small savings rates are not cut drastically, there may not be much scope for the banks to transmit further rate cuts. So, any rate cut optimism by the RBI in the coming months may be an illusion.

Indian market today also reacted adversely to some extent after FM again confirmed the GST roll out day on 1^st July; market may be expecting some initial disruption for a hasty launch of GST with so many rates & complex regulations; compliance costs may be a challenge for the SMES & small business/traders along with confusion of input tax credit (destocking may affect the Q2FY8 earnings). As par some online GST poll, most of the corporate houses are not yet ready for GST roll out on 1^st July.

Today, auto sales numbers for May came mixed; Ashoke Leyland & Maruti disappointed, while M&M (tractor sales) and Eicher Motors has reported upbeat numbers.

Banks were under pressure (SBI/BOB/ICICI) after FM divulged that NPA is a major problem for the Indian Banks & stressed corporate sector and thus it may take more time for an effective resolution. Market may be expecting some more clarity on NPA policy from the FM today; but there was nothing new in that front. ICICI Bank also corrected a bit today after yesterday’s rally induced by some institutional (Black Rock) buying & MSCI index rejig. Metals, Oil & Gas also dragged the Nifty today by some extent, while it was supported by LT (defence order), HUL (FMCG-monsoon & GST optimism)

Meanwhile, US ADP Non-Farm pay roll data for May flashed upbeat & better than expected at 253k (estimate: 185k; prior: 174k). As a result, USDJPY has jumped; technically, the pair (111.40) needs to sustain above 111.80-112.25 for any further rally towards 114.50; otherwise it may again come down towards 110.25-108.25 area in the days ahead; NFP data, wage growth concern, ongoing political squabbling over Trump, overall soft US economic data (inflation) may be some of the triggers.