Market Wrap: 02/08/2017 (17:00)
NSE-NF (Aug): 10081 (-57; -0.57%) (TTM PE: 25.52;
Abv 2 SD of 25; Avg PE: 20; TTM EPS: 395; NS: 10081)
NSE-BNF (Aug): 25041 (-153; -0.81%) (TTM PE: 31.52;
Abv 3 SD of 30; Avg PE: 20 TTM EPS: 795; BNS: 25055)
For 03/08/2017:
Key support for NF: 10065-9990
Key resistance for NF: 10155-10205
Key support for BNF: 24940-24740
Key resistance for BNF: 25275-25485
Hints for positional trading:
Time & Price action suggests that, NF has to sustain over
10205 area for further rally towards 10275-10325 & 10380-10455 in the short
term (under bullish case scenario).
On the flip side, sustaining below 10185-10155 area, NF may fall
towards 10065-10015/9990 & 9925-9855 area in the short term (under bear
case scenario).
Similarly, BNF has to sustain over 25275 area for further rally
towards 25485 -25695 & 25865-26030 area in the near term (under bullish
case scenario).
On the flip side, sustaining below 25225-25150 area, BNF may fall
towards 24990/940-24740 & 24625-24350 area in the near term (under bear
case scenario).
Nifty Fut (Aug) today closed around
10081, slumped by almost 57 points (-0.57%) after making an opening minutes
high of 10149 and closing seconds low of 10081 after RBI cuts by 0.25% as
highly expected, but apparently with a hawkish stance; market was expecting a
dovish RBI on account of lower inflation & subdued growth.
In brief, it seems that RBI is still
hawkish on inflation, expecting the headline CPI to be around 4% by FY-18, but
optimistic of growth (GVA) above 7% (FY-18 estimate at 7.3%); moreover, RBI sees
the present trend of abnormally low inflation as transitory on various global
& local factors and also gave greater thrust on more transmission of rate
cuts by the banks & maintains its present neutral monetary policy in order
to keep its credibility.
Looking ahead, RBI will also monitor
closely the trajectory of CPI & also core inflation along with other
incoming economic data (GDP/PMI) to ascertain that the lower CPI is indeed
transient or durable and may act accordingly.
RBI also called for an urgent need to
reinvigorate private investments as due to increasing trend of farm loan waivers
by various states and PSBS recapitalization issues, India’s combined fiscal
deficit may come under severe stress, affecting the ongoing Govt capex, which
may be the sole driver of the economy in recent times.
Incidentally, yesterday’s figure
shows that Central Govt fiscal deficit for Q1FY18 has already crossed 80% of
the FY-18 budget estimate.
As par RBI, it cuts this time despite
on neutral mode theoretically on account of normal monsoon, lower inflation and
smooth implementation of GST. But it also raised concern on recent abnormal
surge in certain food items like tomato, onion & milk due to adverse effect
of flood in different parts of the country and also called for removing the
legacy issues of infrastructure bottlenecks in India.
Thus, overall Patel/MPC being an
inflation hawk, it seems that RBI will wait for actual inflation & GDP data
in the coming quarters and if both go higher, RBI will not cut further; thus
this may be a one off hawkish cut by RBI till at least Dec’17; if an economy is
expected to grow above 7% in the coming quarters, a central bank need not jump
in to cut further; otherwise it may turned into a too hot economy.
As market has little time to digest
the full implications of RBI policy today, tomorrow’s price action may guide us
further as market is supreme to interpret today’s RBI policy.
Today Nifty was supported by RIL,
NTPC, Ambuja Cement, ACC, Lupin (new US FDA approval) & Adani Ports; while
it was dragged by banks on rate cut transmission issues/lower NIM , capital
goods (tepid Mfg PMI), IT & Pharma counters as INR got stronger after 2015.
Today RBI’s statement & presser
summary:
·
RBI cuts repo rate by 0.25% to 6.0%
·
Policy repo rate under liquidity
adjustment facility (LAF) reduced by 25 basis points from 6.25 % to 6.0 % with
immediate effect
·
Reverse repo rate under LAF stands
adjusted to 5.75 %, and the marginal standing facility (MSF) rate and Bank Rate
to 6.25 %
·
RBI Maintains FY18 GVA Forecast At
7.3%, Also Maintains Neutral Policy Stance With Focus On 4% CPI
·
MPC will continue monitoring
movements in inflation to ascertain if recent soft readings are transient or if
a more durable disinflation is underway
·
4 out of 6 MPC voted in favour of
25bps cut; 1 for hold; 1 for 50bps cut
·
MPC remains focused on keeping
headline inflation close to 4% on a durable basis
·
There is an urgent need to
reinvigorate Pvt investment; provide a major thrust to PMAY for housing needs
of all
·
MPC decided to keep policy stance
neutral and to watch incoming data
·
Some Upside Risks To CPI Reduced/Not Materialized.
CPI May Rise 100 bps In 18-24 Mths
·
Implementation of farm loan waivers
by States may result in possible fiscal slippages and undermine quality of
public spending
·
Several factors contributing to
uncertainty around this baseline inflation trajectory
·
Govt. and the RBI are working in
close coordination to resolve large stressed corporate borrowers & recapitalize
PSBs
·
Excluding food and fuel, CPI
inflation moderated for 3rd month in succession in June, falling to 4% as price
momentum moderated
·
Weakness in the capex cycle was also
evident in the number of new investment announcements falling to a 12-year low
in Q1
·
On the positive side, natural gas
recorded an uptick in production after a prolonged decline and steel output
remained strong
·
Administered prices of LPG and
kerosene are set to rise with the calibrated reduction in subsidy
·
Visible signs of the usual seasonal
price spikes, even if with a delay and especially of tomatoes, onions and milk
·
Imports of coal, electronic goods,
pearls and precious stones, vegetable oils and machinery also accelerated
·
Net foreign direct investment doubled
in April-May 2017 over its level a year ago, flowing mainly into manufacturing
·
Import growth remained in double digits,
due to a surge in oil imports & stockpiling of gold imports ahead of GST
implementation
·
In June, retail inflation measured by
y-on-y changes in the CPI plunged to its lowest reading in the series based to
2011-12
·
We have taken a calibrated policy
decision: RBI Governor
·
Data flow is continuous, we did have
the GDP numbers and had two more data points related to inflation itself: RBI
Governor
·
Fuel inflation declined for the
second month in succession as international prices of liquefied petroleum gas
(LPG) fell
·
With GST, normal monsoon, we thought
it is a good time to go in for a 25 bps cut: Governor
·
Prices of food & beverages, which
went into deflation in May 2017 for the first time in the new CPI series, sank
further in June
·
On domestic front, a normal monsoon
for 2nd consecutive year has brightened the prospects of agricultural &
allied activities
·
International financial markets have
been resilient to political uncertainties and volatility has declined
·
MPC noted underlying growth in industry &
services is weakening slightly-RBI Gov
·
Govt working in close co-ordination
to recapitalize PSU banks within fiscal deficit target-RBI Gov
·
To use tools mentioned in April policy in
liquidity management-RBI Dy Gov
·
Working on next steps for resolution
of stressed loans-RBI
·
Marginal cost loan rate experience
not satisfactory; Task force to review current state of credit data-RBI Dy Gov
·
Addressing twin balance-sheet issue
as top priority. Will release final guidelines for tri-party repo in coming
weeks-RBI Dy Gov
·
See scope for banks to reduce lending
rates segments which have not benefited; Fall in core inflation has been
'substantial'-RBI Gov
·
Retained 'Neutral' stance as
inflation likely to rise for rest of the year-RBI Gov
·
Inflation expected to rise from
current lows going ahead. Farm loan waiver, GST, pay hikes are risks to
inflation-RBI Gov
·
Excluding HRA impact, headline CPI
may be slightly about 4%. Core inflation has fallen significantly over past 3
months-RBI Gov
·
Will be exploring various options in
the near future to make the base rate more responsive to changes in cost of
funds of banks
·
Conclusive segregation of transitory
and structural factors driving the disinflation is still elusive
·
Working on second list of cos to be
sent to nclt for insolvency-rbi gov
·
MPC remains focused on its commitment
to keeping headline inflation close to 4% on a durable basis.
·
The trajectory of inflation in the
baseline projection is expected to rise from current lows
·
Kharif sowing progressed at a pace
higher than last year, with full-season sowing nearly complete for sugarcane,
jute & soybean
·
Rate transmission not guaranteed; MPC
resolution explains why we went for a rate cut today; 'Stance is exactly where
it should be'
·
Will continue to monitor currency in
circulation closely-RBI Dy Gov
·
Given current liquidity conditions
& monetary easing, there is scope for banks to cut lending rates-RBI Gov
·
Transmission has been much stronger
in new lending (PL/HBL)-RBI Gov
·
Normal monsoon, smooth GST rollout
and the falls in inflation gave us confidence to cut rates-RBI Gov
·
Intend not to destabilize, shock
markets on OMO sales-RBI Dy Gov
·
Not changing the policy stance was
the right call-RBI Gov
·
Indebtedness of banks and large firms
may dampen investment
·
Study group set up to look into the
MCLR mechanism-RBI Dy Gov
·
Headline inflation will be slightly
above 4% by end-2018-RBI Gov
At the end of the day, Indian bond market may be one of the
vital indicator of today’s RBI policy; the 10YGESC bond yield did not tumble at
all an d closed slightly up at 6.447% (+0.06%), despite slump in USDINR. Thus
bond market may be expecting no further rate cuts in the foreseeable future.
Asian market update:
FX UPDATE:
Asian market update:
FX UPDATE:
SGX-NF
BNF
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