Technical & Macro Analysis Of Indian & Global Market----: Nifty Lost All The Momentum After Hitting 9700 And Closed 19 Points Lower Amid Concern For A GST Disruption, Stretched Valuation & Global Geo-Political Headwinds Ahead Of RBI Tomorrow

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

NSE-NF (June): 9666 (-19; -0.20%) (TTM PE: 24.40; Near 2 SD of 25; TTM EPS: 395; NS-9637)

NSE-BNF (June): 23438 (+13; +0.05%) (TTM PE: 29.45; Near 3 SD of 30; TTM EPS: 795; BNS-234416)

For 07/06/2017:

Key support for NF: 9630-9570

Key resistance for NF: 9710-9750

Key support for BNF: 23350-23150

Key resistance for BNF: 23450-23550

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 9730-9710 area, NF may fall towards 9630-9570 & 9530-9470 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23550 area for further rally towards 23650-23875 & 24000-24100 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23500-23450 area, BNF may fall towards 23350-23150 & 23050-22950 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9666, almost flat with a slight negative bias (-0.20%) after making an opening minutes high of 9704 and session low of 9659; broad selling was very clear in the market after Nifty touched the high of 9700 milestone. Indian market today opened in slight gap up (+15 points) following subdued global cues and hopes of a dovish RBI tomorrow along with GST optimism. But GST optimism may have quickly turned into pessimism amid apprehension of a GST disruption, considering lack of sufficient preparedness and the complex structure of the present GST format (multiple rates of taxes, overall complex rules & regulations and compliances). Smooth implementation of the GST may be also quite challenging and Govt may be also very concerned.

Overnight US market closed in slight negative (-0.10%) as market turned cautious ahead of ECB meet, Comey’s testimony and UK election amid mixed US economic data (ISM Non-Mfg PMI came slightly tepid but employment portion was upbeat). There was also some talk that some influential opposition DNC members are ready to co-operate Trump for the health care & infra spending plan and tax reforms; if there is no terrible outcome from Comey’s testimony this week, one can expect for some progress of the US tax reform plan in July-Sep’17.

As of now Fed is scheduled to hike in June; but the big question may be its future stance (hawkish/dovish) and considering the overall soft US economic data, Sep hike may be in doubt now. Although, US stock market is rallying on optimism of a reflation trade (US infra/fiscal spending), bond yields are not yet convinced and are diverging quite a lot.

In the morning Asian session today, some hawkish comments by Japan’s FM about reducing debt/GDP ratio has strengthened the JPY and thus Japan was trading lower. China & HSI were trading higher, after PBOC has done an unexpected big MLF operation. Also, some reports that US (FBI) has already some documents, which can prove Russia’s involvement in the US election/Trump proximity may have affected the global market sentiment (USDJPY), because in that scenario, Comey’s testimony may be adverse against Trump.

Also, global market may be cautious ahead of UK election, ECB meet tomorrow and for the GCC crisis (Middle East) regarding Qatar.

Amid all these Geo-Political jitters, Indian market today opened in an optimistic note on hopes for a RBI rate cut (?) and dovish stance tomorrow. But, considering the overall macroeconomic scenario and Fed’s hawkish stance, RBI may remain to be hawkish on inflation and optimistic on growth (GDP); i.e. RBI/MPC may continue its present neutral monetary policy. RBI may watch actual effect of GST, 7-CPC arrears, & monsoon on the inflation and may wait for another 1-2 quarters before changing its stance. Thus, RBI may not provide any strong guidance for an August cut. Overall, all being equal, there may not be any further space for more rate cut transmissions by the banks, unless Govt cut interest rate on various small savings instruments; and unless & until that is done, a rate cut at this point of time by the RBI may be useless. RBI, in turn may want to keep the INR & GSECS bond yields stronger by keeping its present neutral policy for the interest of the Indian bond market, which may be more important for the Govt to fund its deficit.

In the last half an hour today, Indian market made some recovery as IMD came with an updated & upbeat forecast for the monsoon, just ahead of RBI tomorrow, may be just to assure the RBI/MPC that monsoon will be absolutely normal & fine this year. Govt/FM may be also in favour for a rate cut tomorrow, considering the tepid Q4 GDP at 6.1%.

Some of the PSBS recovered today after reports that Govt may be exploring very actively for more consolidation in the PSBS space, where 4-5 large PSBS like SBI may be an ideal scenario; small PSBS may be merged with BOB & PNB. Govt is also very anxious about telecom sector loan/NPA and called for a meeting with various stakeholders for such concern.

Market sentiment may be also affecting due to the fact that despite upbeat performance, various small steel sector companies are not being able to repay their bank debt; overall Q4 EBITDA may be also very subdued (-4% QOQ ?) and thus loan repayment capacities of the stressed Indian Inc may be in doubt.

Today, Nifty was supported by IT (TCS/HCL/INFY/TECHM/WIPRO) and some private banks (Indusind/HDFC/Kotak) and Infratel to some extent. But, it was dragged by Tata Motors (below expected JLR sales), ITC (concern for diversification into packaged fruit juice segment), RIL, Cement scrips (price cut in Delhi/NCR), LT, ONGC, Sun Pharma etc.

Elsewhere, Gold is now trading around 1293, just shy of the positional resistance zone of 1295 following slumps in USD/US bond yields. The primary reason behind fall in US bond yields and rally in USTSY (bonds) may be reported buying of USTSY notes by China (PBOC) in order to shore up its treasury holding after the recent sell off in Feb-March’17. This was followed by slump in USTSY in Nov’16 after Trump wins the US election (Trump trade). Another theory may be that buying USTSY may help Chinese Yuan (CNY) against USD as PBOC is keen to wipe out the huge short positions (offshore) in CNY to take control of the currency and prevent outflow.

Apart from the buzz of Chinese buying of USTSY and subsequent slump in USD/US bond yields, Gold may be also supported by Fed’s high probable “dovish hike” next week and heightening geo-political tensions such as US political jitters (Comey’s testimony, alleged Russian link with US election & Trump), UK political risk/election and tensions in Middle East (GCC & Qatar); i.e. safe heaven appeal.

Technically, we should watch the 1295 zone for Gold & moreover, 127 area for 10YUSTSY as it’s the primary driver of the market/USD now. 10YUSTSY may rally for 128-129 area, if sustained above 127 and in that scenario; Gold may also jump for 1310-1335 & 1352 area in the coming days; otherwise it will fall. The immediate positional support for Gold & 10YUSTSY is now around 1270-1245 & 1225 and 126.25-125.75 & 125.25 area respectively.

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