Technical & Macro Analysis Of Indian & Global Market----: Nifty Moved By Another 32 Points And Closed At Record High Amid Hopes Of A Dovish RBI & GST Optimism Despite Muted Global Cues

Market Wrap: 05/06/2017 (17:00)

NSE-NF (June): 9685 (+32; +0.34%) (TTM PE: 24.49; Near 2 SD of 25; TTM EPS: 395; NS-9675)

NSE-BNF (June): 23426 (+85; +0.36%) (TTM PE: 29.51; Near 3 SD of 30; TTM EPS: 795; BNS-23460)

For 06/06/2017:

Key support for NF: 9640-9585

Key resistance for NF: 9700-9750

Key support for BNF: 23400-23200

Key resistance for BNF: 23550-23650

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9750 area for further rally towards 9825-9865 & 9930-10100 in the short term (under bullish case scenario).

On flip side, sustaining below 9730-9700 area, NF may fall towards 9640-9585 & 9540-9480 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 23300-23200 & 23050-22900 area in the near term (under bear case scenario).

Nifty Fut (June) today closed around 9685, almost 0.34% higher after making a day high of 9699 and opening session low of 9653. Indian market today opened gap up by around 10 points following positive closing of overnight/Friday US market (+0.29%) despite subdued NFP job data report; US market was helped by industrials & tech shares amid Trump’s ongoing stance of protectionism (America first). His withdrawal from Paris climate accord may be viewing as positive for US Mfg industry and American jobs. Trump now wants to export (sell) US technology for clean CO2 or NG to EM like China & India, which may be supporting the industrial sectors to some extent.

Morning Asian/global cues were mixed following a sad incidence of terrorist attack in London yesterday; but UK poll will go on as scheduled (8^th June). China market was trading lower following further strengthening of Yuan by PBOC despite better than expected service PMI; PBOC has vowed for a neutral monetary policy going ahead.

After Sunday’s sad incident of terrorist attack in London, the earth shattering news came from Middle East, where in an unexpected move all the GCC (Saudi Arabia, Egypt, UAE) countries has cut diplomatic ties with Qatar on allegation that the country (Qatar) is a major sponsor of terrorist activities in the Middle East, being very close to Iran/ISIS.

Form a market point of view, Qatar is a major investor through its $335 bln SWF into major global corporations, such as Rosneft, Barclays etc and although, it may be a small country, it’s a financial superpower. Thus, apart from regional instability, OPEC-NOPEC differences over oil issues, there are concerns for any abrupt selling of its SWF stake into various global corporations, causing market volatility. Oil may also be affected for this as Iran may not co-operate with the OPEC-NOPEC production cut agreement.

Although, Qatar is not a big producer of oil, it’s a major supplier of LNG and any disruption in that front (LNG export) may benefit Australia directly as the country is also one of the major global producer of LNG. In India, LNG importing companies, such as Petronet, IGL may be slightly affected.

Amid all these global jitters, Indian market may have outperformed its peers today amid hopes of a RBI rate cut/dovish stance in its forthcoming meeting on 7^th June and GST optimism. Titan & other jewelry stocks surged significantly after favourable GST rate (3%) imposed on Gold in lieu of 5% expected (current tax: 2%).

Although, market is expecting a dovish stance from RBI this time (change from official neutral to accommodative) and some section of the market are even expecting a surprised 0.25% rate cut, RBI may not oblige so much, considering the issues of sticky core CPI, higher food inflation, effect of GST & 7-CPC arrears on inflation and above all a hawkish Fed. RBI may continue with its neutral policy and wait for further macro data like further core CPI & GDP trajectory; RBI may term the sudden fall in Q4 GDP as transitory and unfavorable base effect of change in WPI series (GDP deflator) and may also wait for Q1FY18 GDP for any action on repo rates. Another factor may be, if RBI goes for an unexpected rate cut, acknowledging the tepid Q4 GDP; it may be equivalent to acknowledging the sudden fall in GDP for DeMo blues and may go against the Govt’s official stance of improvement in GDP.

Today, Nifty was supported by Banks after Govt/FM stressed that reviving banking sector and private investments are top in the Govt’s priority list. Nifty was supported by Yes Bank, LT, TCS, ICICI Bank (deleveraging news) & RIL and was dragged by CIL, INFY, Indusind Bank, ITC & Pharma shares (renewed US FDA concern).

Meanwhile, US Non-Mfg PMI (May) just flashed as 56.9 against estimate of 57 (prior: 57.5); although the headline is subdued, the employment portion of the same came upbeat at 57.8 (prior: 51.4).Thus, SPX-500 now also in upbeat mode despite subdued NFP data; may be Trump’s rhetoric of “more American jobs” after going out of Paris climate accord and optimism about Theresa’s win in the latest ICM polls.

Technically, SPX-500 (2435) need to sustain above 2445-2450 area for further rally towards 2470-2490; on the flip side, closing below 2425 zone may be negative for the US market in the coming days.