Market Wrap: 01/08/2017 (17:00)
NSE-NF (Aug): 10147 (+44; +0.44%) (TTM PE: 25.61;
Abv 2 SD of 25; Avg PE: 20; TTM EPS: 395; NS: 10115)
NSE-BNF (Aug): 25200 (+195; +0.78%) (TTM PE: 31.60;
Abv 3 SD of 30; Avg PE: 20 TTM EPS: 795; BNS: 25123)
For 02/08/2017:
Key support for NF: 10100-10055
Key resistance for NF: 10155-10205
Key support for BNF: 25150-25050
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 10100/10055-10000/9955 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 area, BNF may fall
towards 25150-25050 & 24800-24640 area in the near term (under bear case
scenario).
Nifty Fut (Aug) today closed around
10147, almost 44 points up (+0.44%) after making a day low of 10105 and closing
minutes high of 10150 on the eve of highly expected RBI rate cut @0.25%
tomorrow. Although, the 0.25% rate cut may be already discounted, market may be
looking more or some dovish commentary from MPC/Patel this time as banks are
continously cutting their savings rates across select categories; even EPFO
today indicated indirectly to align their interest rate after the current
Parliament session.
High small savings interest rates are
one of the primary factors behind India’s high RBI repo rate or bank lending
rate as banks can’t offer too much low interest rate on their fixed deposits
than the small savings instruments, which has around 8% rate currently. Also,
banks can’t lend its borrowers below its FD rate, irrespective of their average
cost of funds via RBI repo or from other sources.
RBI has also raised this factor of
high small savings rate in India repeatedly and called for realignment of the
same with average GSEC 10Y Bond yield, currently around 6.5%. A drastic cut in
small savings rate might be a tough political decision as it’s involved with
the ordinary public (voters); but as the Govt has now no virtual political opposition,
especially after recent back door entry in Bihar, Govt may go ahead with this
tough reform this time, paving the way for more drastic rate cuts in India as
par global standard as the condition is now ideal (low growth/Mfg PMI & low
inflation).
Also, there was some report that the
present NITI Aayog VC has resigned to resume his academic stint in US may be
acted as positive for the market as he may be seen as a conservative person for
the new shinning India.
Apart from these, upbeat July auto sales figure and a stable Q1
earnings so far may have also boosted the Indian market sentiment right now.
Today,almost all the major Asian markets has resumed the month of Aug with upbeat
mood following positive global/Asian cues after renewed hopes of
Trumpcare, this time by Trump’s executive power amid lingering US political
concerns.
Also, today’s Caixin Mfg PMI from China for July came upbeat as
51.1 against estimate of 50.4 (prior: 50.4) and being a trusted private data,
market believes it in more than the official version; subsequently both China
& Hong-Kong are trading in moderate green and also boosted the overall
global market sentiment on hopes of reflation & a consistent China growth.
But, still all the recent growth in China may be a result of
Govt capex rather than private investments as most private companies are still
struggling amid ongoing deleveraging effort by the China Govt/PBOC.
A better China Mfg PMI is good for metals, iron ore & mining
activities, which in turn is supporting the overall market sentiment, where
growth is not scarce but enough to generate reasonable employment without any
runaway inflation; a goldilocks like situation. The same perception may be also
supporting the US market right now.
Overnight, US market also closed almost flat amid mixed US
economic data, earnings and renewed political concerns; DJ-30 has closed around
0.28% up, at another record high, supported by Boeing, while broader market was
dragged by FANG/Tech stocks.
In an ongoing political drama, Trump again fired his WH
spokesperson (communication director) just 10 days after appointment allegedly
for some Russian finance connection; Trump most probably is trying hard to get
his trusted circle of WH officials and this hunt may go on in the days ahead
with the help of its new chief of WH staff Kelly, a retired army general,
seeking order & discipline among the fraction ridden WH personnel.
In another development, there is some report that Trump
personally dictated his son’s misleading testimony to US senate, which may be a
culpable offence and he may face some kind of criminal investigation also for
this!!
All these ongoing political entertainment at WH is keeping the
USD lower and coupled with that better economic data coming out of EZ &
talks of ECB QE tapering is making EUR stronger & EU bund yields higher,
which may be not good for risk-on trade; European & global market may come
under pressure; although a lower USD may be good for US market.
Again, a lower USD may be good for overall Indian economy, being
largely an import oriented country, it may not be good for the market as almost
60% of Nifty earnings may be generating from export income.
Back to home, Indian market (Nifty/India-50) has also opened in
positive tone tracking upbeat global mood, but soon came under some selling pressure
after July Mfg PMI came terrible at 47.9, much below the boom/bust line of
50(EST: 50.8; PRIOR: 50.9); it’s the lowest since Feb’2009 (global financial crisis)
and also the 1st contraction since Dec’16, after DeMo. Obviously the
main reason may be the Pre-GST disruptions this time (de-stocking) and
subsequent adverse effect on Mfg industry (one time exceptional event).
Although, it’s now almost certain that RBI will cut rate by
0.25% tomorrow, any disappointment or hawkish outlook may also affect the
market sentiment in a significant way. USDINR is now trading around 64.30, down
by almost 0.16% tracking broader weakness of the USD.
The monetary divergent policy between Fed & RBI, where Fed
is on the path of hike/QT and RBI may cut tomorrow, should make the INR weak
against USD. But, an incrementally higher equity market inflow from the FPIS because
of RBI cut (helpful for India’s equity market) may be supporting the INR apart
from robust macros except some black swan events like DeMo, Pre-GST disruptions
etc.
Technically, for USDINR,
the area of 63.90 may be a good positional support as of now; interestingly, INR is still not a full free float currency
(not fully capital account convertible); i.e. Indian people are not free to buy
USD or convert it to INR freely; there are certain restrictions.
Another point is that although, PSBS (SBI etc) are slashing
their savings rate aggressively, keeping the MCLR at present level to improve
their NIM, it may not amuse the Govt also as it may be a political issue. If
Govt does not slash the small savings rate correspondingly, we may see also
flight of deposits out of PSBS to other public sector entities like post office
savings or other small savings instruments.
As real rate of interest (RRI) in India is historically high, it
need to be come down in accordance with the present global standards to stay in
the game of export as domestic consumption may me fast approaching a saturation
point; the abnormal high RRI & also high inflation for decades may be one
of the primary reasons behind India’s huge Banking stressed assets (NPA/NPL).
Indian market today was supported by Automobiles after upbeat
July sales figure from the country’s top auto manufacturer Maruti; other auto
companies are also trading upbeat on hopes of better show in July.
Incidentally, Maruti clocks overall sales of 1.65 lakh vehicles
(+20.6%) against estimate of 1.55 lakh with domestic sales up by 22.4%, whereas
export was almost flat; the sudden increase in July domestic sales may be also
due to Post-GST discount & rebuilding of inventory by dealers after Tepid
June (Pre-GST disruptions) and may be exceptional.
Looking ahead, Nifty-Fut (Aug) now need to sustain over 10205
zone for more rally towards 10275-10325 area; otherwise it may come down
towards 10070-10000 area ahead of RBI tomorrow; MPC statement may be closely
watched and RBI may not try to destabilize the attractive Indian bond market by
cutting drastically or being too much dovish against a hawkish Fed, indicating
multiple rate hikes in 2017-18 with QE tapering.
Thus tomorrow’s 0.25% cut to bring the Indian repo rate at 6% may
be one off and last in 2017, despite all the hopes for a dovish cut.
RBI may also indicate the transient nature of lower inflation
considering the recent surge in food/vegetable prices due to flood in different
parts of the country and also surge in selected items after GST rate anomaly.
Nifty was today supported by TECHM (upbeat report card), Eicher
Motors/Maruti/M&M (better July auto sales figure), BPCL (increase of ATF
prices), Auro Pharma, DRL & some private banks, while it was dragged by
RIL, BOB, SBI, ONGC, Lupin, INFY & LT.
Elsewhere, Australia (ASX-200) is closed around 5772, up by
almost 0.90% tracking some drops in AUDUSD following RBA talk down effort, which
has hold the rate at 1.50% with neutral stance (all are in expected lines).
ASX-200 is today also being helped by commodities (metals/miners) after upbeat
China Mfg PMI data and some surge in oil above the $50 mark.
Japan (Nikkei-225) is also closed in green around 19985
(+0.30%), after reversing from early red amid strength in Yen (lower USDJPY);
but it was today helped by financials, airlines (upbeat guidance) & energy
related shares.
Today, core CPI out of Japan came a bit upbeat at 0.3% against
estimate of 0.2% (prior: 0.3%); but vehicle sales suddenly plunged to -1.1% in
July against growth of 9.7% in June; Mfg PMI for July today also came little
depressed at 52.2 against estimate of 52.2 (prior: 52.2).
China (SSE) is now trading around 3278, almost up by 0.17%, but
off the day high tracking some strength in Yuan and the upbeat PMI data; PBOC
today fixed USDCNY at 6.7148 vs 6.7283 amid broad weakness in USD (the
strongest since Oct’16) and remained neutral on its daily money market
operations.
South Korean market (Kospi) is also in deep green (+0.90%) on
strength of electronics/techs & airlines companies coupled with a
blockbuster export data in July helped incrementally higher chips export
on increasing mobile demand from India
(due to affordable data) & higher global demand.
Hong-Kong (HKG-33) is also trading in deep green around 27535
(+0.90%) on upbeat China PMI data & subsequent strength in commodities
& oil. But it’s being dragged slightly by fall in Sanghi Fosum Pharma after
Indian Govt raised concerns over its planned acquisition of Gland Pharma, a Indian
pharmaceutical company.
Recently Indian Govt is becoming very skeptical about China’s
investments in India. The proposed M&A may be the largest ever China
investment in India; but the reported rejection may be also due to ongoing
border tensions with China at Doklam (Sikkim).
Overall, upbeat PMI from China, the global growth engine &
the manufacturing power house of the world coupled with strong/stable earnings
so far from around the world (Asia/EU/US) may be boosting the overall risk-on
sentiment despite some dips in USD & strength in EUR. But, further dips in
USD may also harm the export heavy Asian & EU markets. Also, abundance of
cheap money still now may be also supporting the risk-on sentiment.
Crude Oil is now trading around 50.20, up by almost 0.10%, but well
off the yesterday’s low of 49.17 on hopes of an impending Venezuela sanctions
by Trump, which is being opposed by some of his own RNC members (Caracas group,
a quasi constitutional super body, generally opposed to Trump’s policy
including the Trumpcare); as par latest US TSY communication, the sanction is
only applicable on the Venezuelan President; the country depends significantly
on its oil exports.
EU market was also upbeat tracking positive China Mfg PMI and
lower EUR/EUR bund yields, thanks to subdued EZ PMI & GDP data today (slightly
below expected), thus may have also helped the Indian market sentiment towards
the closing session.
FX DIARY----
SGX-NF
USDJPY
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