Market Wrap: 29/09/2017 (17:00)

NSE-NF (Oct):9795 (+8; +0.08%)

(TTM PE: 25.49; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 9789; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

(TTM PE: 27.11; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24053; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 03/10/2017:

Key support for NF: 9760-9695

Key resistance for NF: 9825-9865

Key support for BNF: 23900-23700

Key resistance for BNF: 24100-24300

Hints for positional trading:

Technicals indicate that, NF has to sustain over 9865 area for further rally towards 9925 -9975 & 10015-10050 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9845 area, NF may fall towards 9800-9760 & 9695-9645 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24100 area for further rally towards 24300-24550 & 24750-24850 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24050 area, BNF may fall towards 23900-23800 & 23700-23600 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 9795, almost flat (+0.08%) after making a day high of 9881 and low of 9788, thus erasing the entire day gains Market today opened in a positive tone around 9802, almost 17 points up, tracking positive global cues on US tax reform optimism and it rallied quite smartly to the day high amid yesterday’s after market hours news that Govt is committed for its fiscal discipline for FY-18 and likely to adhere the 3.2% fiscal deficit target without any additional borrowings till Dec’17or H2FY18.

As par DEA yesterday, to revive growth (fiscal stimulus), Govt may issue bonds for around Rs.2.08 tln apart from support of enhanced PSU dividends and some other sources of revenue. No additional borrowings by the Govt may be positive for the banks as they can lend more to the business & retails on greater margin/interest rate rather than to the Govt with discounted rate.

However in the last hour of trade today, there was buzz that Govt may have some room to borrow Rs.1 tln in H2FY18 in addition of its total FY-18 borrowing target of Rs.5.8 tln (if needed). This confusion along with long weekend may have induced the market to sell and wait for further clarity as concern of fiscal slippages and subsequent rating downgrade may be the primary reason behind recent surge in FII selling & market plunge.

Meanwhile, after market hours, Indian fiscal deficit till Aug’17 also came as terrible, almost 96.2% at Rs.5.25 tln of FY-18 budgeted target of Rs.5.47 tln. The revenue deficit was also at almost 133.9% till Aug!! Although it may be an alarming situation amid calls for a sizable fiscal stimulus package to revive the slowing economy, the fiscal situation may improve by Sep-Oct as this Aug figure may not include the GST proceeds and will also include the advance tax figure.

Still, the ballooning fiscal & revenue deficit may impair Govt’s ability to stimulate the economy without adhering the fiscal discipline and as par some estimates as par present trend Govt may end up around 3.8% of fiscal deficit by FY-18 instead of 3.2% projected and that may be the prime concern of the market as rating agencies may downgrade India in that scenario, causing more FIIs outflow.

Today Nifty was supported by Eicher Motors, HDFC Bank, VEDL, Gail, IOC, Adani Ports, M&M, Maruti, L&T and Bajaj Auto by combined around 30 points, while it was dragged by ITC, TCS, HUL, RIL, Wipro by almost 20 points cumulatively. Overall Automobiles supported the market today on optimism about Sep monthly sales to be released next week coupled with reality/property developer stocks on optimism about affordable housing and consumer durable goods ahead amid ongoing festival season.

Looking ahead all eyes may be now on India’s Mfg PMI, Auto sales nos for Sep along with RBI on 4^th Oct for any surprised gift to the economy on the eve of Diwali by cutting 0.50% (?) to lend a helping hand to the Govt to revive the slowing Indian economy. But any drastic unusual rate cut by RBI this time, although very unlikely may be also dubbed as “panic” response by a Central Bank and thus it may cause more harm to the equity as well as the bond market, which is so far not reacted negatively for the “gloom & doom” debate.

Indian Market Resumes Oct Series In Positive Tone And May Focus On “War Of Words” Between FM & Former FM Over Trajectory Of Economy & Fund Outflow Concern:

Indian market rallied quite smartly after starting the Oct series in an upbeat note following 7 days of losing streaks on concern of slowing economy, dilemma of fiscal stimulus & fiscal slippages, a hawkish Fed, strong USDINR and ongoing FIIs fund outflows.

A combination of higher USD, higher US bond yields and an “attractive” US corporate tax system may be not good for the EM including India as FIIs fund outflow may accelerate in the days ahead.

Market may also focus on the current spate of “war of words” between FM & the former FM (columnist) for “diagnosis & prescription” of slowing Indian economy.

It may be now increasingly clear that Govt is in no mood for tolerance even for constructive criticism of its policies and this may not be a good signal for the investors, who rely only on the hard facts & figures, which tells that between March’15 to March’17, Nifty EPS was around 374-370-395 and currently it stands around 384 (Q2FY18); thus where are the earnings growth?

Despite all the so called green shoots in Indian the economy under NDA, Nifty EPS is not able to break the 400 barrier in the last three years and thus the problem may be structural & it needs some structural resolution rather than rhetorical or political. Not only GDP slowed down, but CAD has surged to almost 4 times in the recent times, which indicates a weaker economy and need for some appropriate Govt policy support.

Market may be also worried about new mandatory disclosure of any debt obligation defaults norms by SEBI even by a day (technical default) to be effective from Oct’17. There are also significant risks of revenue collection on account of GST/GSTN disruptions and private capex may be also subdued due to muted bank credit growth. Farm loan waivers (political populism) across various states may be also negative for state’s fiscal discipline and subsequent capex ability to stimulate the economy.

USDINR-I today fall by almost 0.40% to around 65.45on month end flow adjustment ahead of RBI next week, which is expected to be neutral (hawkish hold) despite current scenario of “gloom & doom” (RBI Gov Patel is an inflation hawk).Also Govt’s earlier commitments about fiscal discipline may have helped the INR today.

Globally, most of the major Asia-Pacific markets except Japan were in moderate to deep green today tracking positive global cues on Trump tax reform optimism after US TSY Sec yesterday signalled that they will “try” to pass the bill with “retroactive effect” from Jan’17. Lack of retrospective effect in the original tax proposal might be an element of disappointment for the market initially, but this clarification along with some other details like tax cut deficit funding may have boosted the US stock sentiment to some extent yesterday.

But, still, market may not be convinced too much as all these proposals including the Tax reform bill itself is subject to whims & fancy of US legislation and Trump’s ability to pass it; otherwise it may be another instance of legislative squabbling like Trumpcare.

Although, Trump was able to extend the US debt limit on DNC support amid an environment of dual hurricane related humanitarian relief sentiment, going forward he may not be able to garner such bipartisan support for not only hostile DNC, but also for some of his own RNC members. Thus, Trump is now trying to shape the tax reform bill as a political agenda and engaging himself with political campaign to garner support for this tax cut plan from the electorate like a matured politician.

Overall, the present form of Trump’s tax reform proposal may be good for small US corporates, but may not be so much different for the US middle class and thus it may not help the US discretionary consumer spending significantly

Overnight US market closed in positive after making another record high on US tax optimism; especially for the small cap shares (Russel-2000). US market was helped by materials/utilities & techs to some extent yesterday, while dragged by banks & financials as US bond yields came down after a good 7YTSY bond auction. Also, bond & currency market (USD) may be concerned about not only Trump’s legislative ability to implement the tax reform proposal under present shape but may be also concerned about credibility of Fed’s dot-plots projection itself.

DJ-30 was up by 0.20% on support of McDonald (analyst upgrade), while S&P-500 closed almost flat at 2510 (+0.10%) and NQ-100 was also almost unchanged. US stock future (SPX-500) is now trading around 2509, almost unchanged on muted month end Asian cues ahead of EU market opening.

Elsewhere, Australian market (ASX-200) closed around 5682, up by almost 0.20% on support of materials & mining (upbeat metal prices on China optimism), consumer staples & utilities, while financials, healthcare dragged the market to some extent.

AUDUSD is now trading around 0.7847, almost unchanged on lack of any real AU story today ahead of RBA next week, expected to be neutral (dovish hold).

Japan (Nikkei-225) closed around 20356, almost unchanged (-0.03%) on support of a lower Yen as USDJPY still flirting around 113 zone on US tax reform optimism and Fed’s bandwagon for a Dec’17 hike. But mixed JP economic data (good IIP & core CPI, but subdued retail sales) today along with month/quarter end fund flow/position adjustments may have also impacted USDJPY to some extent in the morning Asian session and it’s now trading around 112.40, up by almost 0.10%.

JP market was today helped by exporters, Toshiba’s hostile M&A deal, while dragged by automakers, techs, banks & financials & energies.

China (SSE) closed around 3349, up by almost 0.28% ahead of the long Golden week holiday on SOE (PSU) reform optimism and hopes for a big consumer spending in the forthcoming holiday season; consumer cos are also helping the market today. All eyes may be now on China’s Q3 data including Sep PMI & GDP to gauze the strength of the economy amid deleveraging; thus defensive bets is on the rise also as an insurance protection against any terrible China data.

Today PBOC has fixed the mid-point of USDCNY at 6.6369 VS 6.6285 yesterday, at weakest level since 25^th Aug and drained 160 bln Yuan citing higher liquidity in the banking system. For the week it drained 360 bln Yuan against 450 bln injection previous week.

Hong-Kong (HKG-33) future is now trading around 27505, up by almost 0.60%, but posted the 1^st monthly loss this year on worries about a hawkish Fed, US monetary policy normalization, fund outflow, stretched valuation coupled with concern of China slowdown.

HK market today was helped by mixed property & resource stocks, M&A news in Kunlun energy while ragged by telecoms.

Meanwhile, Crude Oil (WTI) is now trading around 51.65, up by almost 0.30% on month end contracts expirations after an overnight fall of around 1% on reports by Genscape that storage at the certain US hubs (Cushing, Okla) has risen recently.

Elsewhere, EU market is trading in green on the last day of Oct QTR end with Stoxx-600 up by almost 0.16% on EZ economic & corporate earnings optimism and being helped by banks & financials on higher bond yields and expectations of gradual monetary policy normalization and subsequent rate hikes (Fed in Dec’17 & BOE in Nov’17) favourable for their business models.

Market is expecting a growth of around 11% in Stoxx-600 earnings supported by uptick in global growth and rebound in commodities despite negative effect of a stronger EUR on exports!!

But VW is dragging the market today on muted guidance warning due to the diesel/pollution scandal coupled with news of Aviva JV sell in Italy to Banco, which is positive for Aviva and negative for Banco as an initial natural reaction for capex concern. Record unemployment rate in Germany is also boosting the overall market sentiment today. Dax-30 & FTSE-100 are both up by almost 0.70%, while CAC-40 has gained around 0.30%.

FTSE-100 was also helped by some fall in GBPUSD, after subdued (below expected) UK GDP data today at 1.5% for Q2.