Market Wrap: 31/08/2017 (17:00)
NSE-NF (Sep):9942 (+29; +0.30%) (TTM PE: 25.30; Nr.
2 SD of 25; Avg PE: 20; TTM/FY-17 EPS: 392; NS: 9918)
NSE-BNF (Sep):24365 (+12; +0.05%) (TTM PE: 30.59;
Abv 3 SD of 30; Avg PE: 20 TTM/FY-17 EPS: 795; BNS: 24318)
For 01/09/2017:
Key support for NF: 9940-9905/9865
Key resistance for NF: 9980-10030
Key support for BNF: 24200-24000
Key resistance for BNF: 24400-24575
Hints for positional trading:
Time & Price action
suggests that, NF has to sustain over 9980 area for further rally towards
10030-10075 & 10155-10200 area in the short term (under bullish case
scenario).
On the flip side, sustaining below 9960-9940 area, NF may fall
towards 9905-9865 & 9800- 9750 area in the short term (under bear case
scenario).
Similarly, BNF has to sustain over 24400 area for further rally
towards 24525-24575 & 24675- 24775 area in the near term (under bullish
case scenario).
On the flip side, sustaining below 24350 area, BNF may fall
towards 24200-24000 & 23850-23700 area in the near term (under bear case
scenario).
Indian market (Nifty Fut-Sep/India-50) today closed around 9942, edged up by
almost 29 points (+0.30%) after making an opening session low of 9883 and
closing minutes high of 9944, boosted by FNO exp related short covering in last
hours of trade after strong EU market opening and Govt (DEA) assurance of
adhering to fiscal discipline and indication of a “mild” Q1 GDP to be released
in the evening today after market hours.
As par Govt DEA Sec, today’s GDP number to be released may be
“mild” as there was lots of uncertainty in Q1 (pre-GST disruptions); but Govt
has assured no slippage in fiscal deficit target of 3.2% of GDP in this FY-18
due to farm loan waver issues by various states.
Although a combination of lower GDP & lower inflation may be
negative for any economy including India, it may be positive for the Indian
stock market as it may prompt/force RBI to cut more with a dovish outlook; i.e.
more monetary stimulus. Although, it’s still immature, market may be also
hoping for another rate cut in the months ahead, if today’s GDP flashes terrible!!
Indian market today opened lower and most of the trading
sessions hovering in the negative territory tracking mixed global/Asian cues
& renewed concern of Govt’s war on black money following terrible RBI
report on the overall outcome of DeMo released yesterday. Indian market may
have also focused on Q1FY18 GDP to be flashed later today, which is poised to
come around 6.6% amid Pre-GST disruptions against prior figure of 6.1% (YOY).
Overall, Nifty closed the month & exp of Aug around 1.58%
lower, the 1st monthly downfall in the last 9 months (Nov’16) on
account of muted Q1 earnings, stretched valuations, concern of Govt’s war on black
money/shell cos, Ind-China border standoff at Doklam coupled with various
geo-political tensions, NK missile games and not so dovish ECB.
Nifty was most supported by RIL (NCD & book closing for
bonus issue on 9th Sep), HDFC, Maruti, HDFC Bank, Eicher Motors,
VEDL, HUL & Wipro (news of buy back of shares in line with TCS & Infy);
together these counters have contributed almost 41 points in Nifty today.
Nifty was dragged by Infy, Bharti Infratel, Bosch, ICICI Bank,
M&M, Axis Bank, Auro Pharma, ONGC, Tata Motors & LT; altogether these
cos has dragged Nifty by around 25 points.
Meanwhile, Indian GDP for
Q1 indeed flashed not only “mild” as par DEA guidance but it came as
terrible at 5.7% against 6.1% QOQ vs 7.1% YOY; market may rally in the days ahead
for rate cut hopes!!
Q1FY18 GVA came as 5.6% vs 5.6% (QOQ) vs 7.6% (YOY); Farm sector
growth came as 2.3% vs 2.5%; Mfg Sector growth at 1.2% vs 10.7%; mining sector
output at -0.7% vs -0.9%; construction sector growth at 2% vs 3.1%; service
sector growth at 8.7% vs 9%. Thus, only service sector growth may be a positive
surprise; overall GDP data may be the lowest under NAMO regime (Q4FY14) and may
also be a short term aberration due to Pre-GST disruptions and poor corporate performance.
Market may now focus on the Mfg PMI data for Aug, to be flashed tomorrow.
As par India’s CSO, a positive WPI against contraction last year
may be one of the primary reasons for the rapid fall in GDP this year coupled
with Pre-GST related disruptions (destocking, inventory drawdown) and the CSO
see recovery of GDP in Q2FY18; CSO sees no impact of DeMo for today’s poor GDP.
But the CSO has also expressed serious concern over poor corporate
performance not only in Q1FY18, but also from Q2FY17 on account of falling Mfg
activities. Thus, it may be also an indirect effect of DeMo coupled with
subdued private capex & stressed corporate BS (issues of NPA) as GDP is
declining consecutively on QOQ basis and down by almost 1.4% on YOY.
Also, in another worrying macro data, India’s fiscal deficit
reaches 92.4% of full year target in July itself against 73.7% YOY. Thus, Govt
may find it quite challenging to adhere the fiscal deficit commitment of 3.2%
of GDP in real terms without cutting Govt capex or a corresponding surge in
revenue; hopefully GST, disinvestment & Govt’s war on black money may help
in the months ahead.
Indian market may also focused on Govt’s stance against black
money after yesterday’s RBI report of DeMo, which may be indicating an economic
blunder although it is proved as a political master stroke by NAMO.
In any way, whatever be the narrative, Govt/FMO is justifying
the DeMo as a crusade against black money; although it’s a known stance, in
order to reach a definitive conclusion, Govt may also intensify its war against
black money/shell cos ahead of 2018-19 series of state & general election
and that may be negative for the Indian market & consumption story,
although it may be quite correct morally & ethically.
The main issue for the Govt may be now how to track the DeMo
money trails deposited in the banks and nab the economic offender as overall
data is huge. But substantial increase in IT fillings and some surge in IT
collection may be also one of the successes of DeMo.
A better tax to GDP ratio may also prompt the Govt to spend more
and a higher Govt capex (fiscal/infra spending) may be good for the Indian
economy, which is currently plagued by subdued private capex. For the last few
years, Govt capex may be the largest contributor (stimulus) for the Indian
economy (GDP).
Indian FM is also very much optimistic about significant
increase in state Govt revenues in next two years amid DeMo & GST drive
coupled with UID linkage. Indian Govt may also lower various GST rates with
fewer slabs to simplify the indirect tax system in future, if GST collections
come satisfactory; but Govt may not bring the petro products in GST to slash
the high rates for an easy revenue loss concern.
Indian stock exchanges & regulator (SEBI) may be also
actively considering extension of trading hour by another 2-4 hours till the
evening in order to catch up the US market time & action by some extent;
although it may be a positive step considering the global market volatility,
headcount/salary costs of broking cos may also increase significantly and that
may be negative for them, without any major surge in volume.
Market may be also focus on the Govt move on merger &
consolidations of PSBS and the specific plan; merger of weak PSBS with a strong
one may be also termed as negative.
Globally, almost all the
major Asia-Pacific markets were in red today except Japan & Australia
tracking mixed global cues amid surge in USD after upbeat US economic data
yesterday coupled with Trump’s measured rhetoric for NK and renewed hopes of US
tax reform; but mixed PMI data & earnings from China/Hong-Kong may have
affected the overall regional sentiment today by some extent.
Overnight US market closed in positive on muted US response on NK missile panic
coupled with a blockbuster GDP & ADP job data and renewed optimism about US
tax reform; USD/US bond yields got a boost ahead of tomorrow’s NFP job data. US
GDP for Q2 flashed as 3% against estimate of 2.7% supported by solid consumer
spending & business investment, although trade data (export/import) was
subdued.
DJ-30 closed around 0.12% higher, while S&P-500 rallied by
almost 0.46% to finish at 2458 and NASDAQ was up by almost 1.05% boosted by FANG
(Tech) shares. Global/EU stocks were also helped by some fall in EUR on better
US economic data and concern that Draghi may take a dovish script next week’s
ECB meet in an attempt to talk down the currency, considering its unabated
recent strength, which may be negative for overall EU economic prospects.
Although, the devastating Harvey typhoon may be negative for US
economy in the short term considering the catastrophic damage of around $100
bln and its probable negative effect (-0.2%) on Q3 US GDP, the rebuilding
effort and subsequent Govt capex may also help or stimulate the US economy in
the months ahead; thus Harvey flood may be also positive for the US market.
Although, Trump has said nothing new in his campaign style tax
reform propaganda yesterday, he has mentioned about 15% desired corporate tax
rate in US, which is now around 35% (effective rate around 38-40%). Some US
congress members have termed it too low and not acceptable at all.
Probably, as a hardcore negotiator, Trump may settle around 25%
US corporate tax rate with less deductions in his agenda for a simple US tax
structure (deregulation).
Still, even with 25% US corporate tax rate, there may be
significant downfall in Govt revenue and Trump’s plan does not indicate any
step, how to manage such shortfall in revenue without cutting corresponding
Govt capex/expenditure. In that sense, Trump’s tax reform plan was light in
details but heavy on political populism to make America great again. Market
will look for more specific details in his next series of tax campaign speech.
Interestingly, Trump has praised the GOP members for this tax
plan, but not mentioned anything about Cohn, who is supposed to be the main
architect of his tax reform plan; market may be little anxious about current
relationship between Trump & Cohn after some harsh, but measured criticism
about the VA racist incident by Cohn in his tax reform interview few days ago.
US tax reform was one of the major election promise in Trump’s
campaign and also one of the major reasons for US market rally apart from
another narrative of a huge fiscal/infra spending. Market is so far patiently
waiting for these two major themes of Trumponomics; but such patience may be
now on the verge of collapse considering present US policy paralysis &
political logjam.
US stock future (SPX-500) is now trading around 2457, marginally up by 0.09% and looking
ahead it need to stay over 2465 area for 2475-2490 zone; immediate support may
be now around 2450-2440 area.
Elsewhere, Australia
(ASX-200) closed around 5715, up by almost 0.80% amid some fall in AUDUSD on general risk appetite
strength in dollar and a mixed AU capex data, which may boost the Q2 GDP by
0.1%. AU market is also supported by financials; basic materials/miners (better
China Mfg PMI) today.
Japan (Nikkei-225) also closed higher around 19646, up by almost 0.72% on weaker
Yen as USDJPY further advanced to almost 110.62 as NK tension cools off coupled
with an upbeat US economic data yesterday and renewed hopes for US tax reform
& a muted JP IIP data today.JP market today was helped by techs, autos
& exporters, while energy sector was mixed.
China (SSE) closed marginally lower around 3361, down by almost 0.08% amid
mixed PMI data & earnings deluge. Although, Mfg PMI for Aug flashed upbeat
at 51.7 against estimate of 51.3 (prior: 51.4), Non-Mfg PMI came subdued at
53.4 against prior figure of 54.5.
The tepid Non-Mfg PMI may be also an indication of subdued
activities in Chinese construction amid ongoing deleveraging effort by PBON and
various restrictions on property investment. As China real estate market is key
to China’s growth engine, a slowdown there may be also affect the Mfg sector
sooner rather than later, which may affect the overall China GDP in the coming
days.
Thus, real estate/property related shares and banks &
financials have dragged the China market today in addition of concern for
shadow banking activities for the smaller banks/NBFC. But recent optimism about
China market prospect among fund managers/institutions may be also supporting
the overall market sentiment on hopes of a better regularized market having
solid growth potential.
PBOC today fixed USDCNY at 6.6010 vs 6.6102 yesterday, a little
lower despite a higher USD across the board and drained a net 40 bln Yuan by
its daily OMO; a strong Yuan & higher China bond yields may be positive for
China banks as they can also increase their lending rate for higher NIM, but it
may be negative for China’s export.
Hong-Kong (HKG-33) was also trading lower around 27965, down by almost 0.60%
following slump in China construction related banks after subdued Non-Mfg PMI
data from China. Also below expected earnings from China construction bank is
dragging the overall banking & market sentiment therein HK today. But
bargain hunting in some leading China related property shares are also helping
the HK market to some extent.
Meanwhile, Crude Oil
(WTI) is trading almost flat around 45.95 amid mixed EIA inventory report
(surprised gasoline stock surge) coupled ongoing Harvey related gasoline
production disruptions and consequent drop in demands, which may take
considerable time to resume.
Gold is also trading almost flat around 1307 (-0.04%) after some
early Asian session fat figure (?) dump to 1300 ahead of key US economic data
today & tomorrow.
Elsewhere, EU market
is trading in green by around 0.90% in Stroxx-50 tracking lower EUR & an
upbeat China Mfg PMI today, positive for miners/basic resource materials; but
being dragged by retail shares & consumer services after guidance warning
from Carrefour, a leading French super market chain.
Also, an upbeat EZ CPI data coupled with fall in German
unemployment may be supporting the overall EU market optimism; although it may
be positive for EUR.
DAX-30 & CAC-40 is trading around 0.92% higher, whereas
FTSE-100 is up by almost 0.75% aided by some fall in GBPUSD due to ongoing
Brexit squabbling.
SGX-NF
EURUSD
EURUSD
