Market Wrap: 19/09/2017 (17:00)

NSE-NF (Sep):10169 (-7; -0.07%)

(TTM PE: 26.43; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10148; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):25076 (+19; +0.08%)

(TTM PE: 28.23; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 25041; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 20/09/2017:

Key support for NF: 10150-10090

Key resistance for NF: 10205-10250

Key support for BNF: 24900-24800

Key resistance for BNF: 25150-25250

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10205 area for further rally towards 10250- 10325 & 10385-10455 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10185 area, NF may fall towards 10150-10090 & 10050-9975 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25150 area for further rally towards 25250-25350 & 25585-25785 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25100 area, BNF may fall towards 24900-24800 & 24600-24500 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 10169, almost flat, but with a negative bias (-0.07%) after a choppy day of trading in which it made an opening minutes high of 10179 and mid day low of 10148 as market turned cautious in lines of subdued global cues ahead of Fed tomorrow.

Indian market today also opened almost unchanged tracking muted global/Asian cues and Nifty Spot has made another record high of around 10179 in the opening minutes itself and then turned flat with a negative bias.

Market may be on concerned of another NPA/AQR types of disruptions for new SEBI rule to disclose any loan default by the listed cos to be effective from Oct’17 on an ongoing basis; this may put more stressed cos & NPA in the limelight and may cause another wave of AQR types of disruptions in the system/market.

A loan default by a co even for one day may put it on further liquidity crisis as banks may refuse to extend further loans. In that event, there may be a significant liquidity crunch for the SMES & also for the small & midsized corporates as significant amount is also blocked with the Govt in the form of unrealized input tax credit fiasco, advance direct tax payment coupled with a not fully functional GSTN network for processing GST returns & claims.

Under the new system, monthly interest for a business loan in terms of CC has to be paid on the 29^th day, otherwise it may be reported by the banks or has to be disclosed by the co by next day of the default. Earlier if a co was unable to pay the monthly obligation by 89^th day (three months), then Bank may treat it as a default and reported that.

Today market may have also focused on Govt’s fiscal stimulus talks in the forthcoming budget to revive the slowing economy ahead of key state & general elections in 2018-19; but considering the muted GST collections for the 1^st month on account of huge input tax credit claims for the transition stocks and ongoing glitches in the GSTN network, there may be some constraint for the Govt capex in H2FY18, which was the sole driver for India’s GDP in the last few years.

Under the fiscal stimulus, Govt may also try to reform the direct tax mechanism to make it more simpler & affordable to improve the overall tax/GDP ratio; but reform in petro products taxation may looks remote at this stage as Govt can’t afford to lose an easy way to collect substantial tax revenue. Market may be also looking for some corporate & personal tax sops to revive private capex & consumer spending.

Market may have also focused on meeting between PMO-FMO/FIN MIN secretaries & CEA today to take stock of the Indian economic conditions today; but as par latest repot, that meeting is also postponed today.

Market is expecting that Fed will only announce its BS/QE bond tapering program this time with a revised dot-plots to keep the Dec’17 hike probability live; Fed may stop reinvestments of the matured bond principle and began to sell the QE bonds in the market at very gradual pace of $10 bln/pm for next 10 years in an auto-pilot mode.

As such QE unwinding experiment was never tried before by a major central bank, it’s an uncharted territory and thus Fed will watch the financial market response for some months before resuming its rate hike cycle again. As Fed will supply QE bonds in the market, bonds price may fall and yields may rise also for the 10YUSTSY, which is equivalent to some interest rate hike in the US economy.

Thus, Fed may not take the risk of dual QT (both QE bond tapering & interest rate hike) in the coming months and for that it has various excuses available in the form of subdued US economic data including retail sales, recent spate of hurricanes in US, ongoing geo-political tensions involving NK, Trump’s own political jitters involving his Russian link and poor visibility of legislative agenda including the fiscal/infra stimulus narrative.

Fed may be on hold in Dec’17 and will think about rate hikes in 2018 from March’18 onwards (Q1CY18) under new leadership, if Yellen not get an extension; if there is no definitive signal of a Dec’17 rate hike by Fed tomorrow, then it may be interpreted as dovish by the market and USD may fall, which is negative for global equities, especially for the export heavy Asian & EU index including Nifty, but may be positive for the US stock market.

A lower USD may be good for the Indian economy & macros, but may not be good for the market (Nifty) as almost 60% of Nifty earnings are coming from export of products & services. Also, a negative Asian & EU cues because of weaker USD may affect the overall Indian market sentiment, already under pressure for stretched valuations.

After muted Q1FY18 earnings amid Pre-GST disruption, now Indian market may be also apprehending a similar Q2 on the back of GST transition & implementation pains and disruptions in GSTN network. Small traders, specially the informal section are very slow & reluctant for GST registration and necessary book keeping, fearing retrospective effect as they may have never accounted their business income before.

Today Nifty was supported by Tata Motors, Bharti Infratel, Kotak Bank, Gail, IOC, ICICI Bank, BPCL, ITC, Infy & Adani Ports. Nifty was dragged by HDFC, RIL, HDFC Bank, L&T, SBI, Eicher Motors, VEDL, Auro Pharma, Axis Bank & Sun Pharma. Overall, Auto & FMCG & selected private banks gained, while Metals, Pharma, PSBS & banks dragged the market today.

Gail was up by over 5% today for renewed optimism about gas distribution & utilities business on prospect of multi year growth with an EPS CAGR of over 15%; similarly other gas distribution stocks has gained quite smartly today.

Tata Motors rallied almost 5% today on purchase of additional stakes by Tata Sons (promoters group) in order to consolidate its stake in the co by 1.7% more to 36.4%; similarly other Tata group of cos such as Tata Chemicals gained today. Bharti Infratel extended its gain by another 2.36% on buzz of an imminent tower deal (deleveraging).

Coal India slumped by over 2% on concern of regulatory fines (environment issue) for around Rs.20000 cr by Odisha Govt following a SC order.

Globally, Asia-Pacific stocks were mixed today tracking muted global cues as market may be cautious ahead of Fed & BOJ and on increasing US-SK war drills in the Korean peninsula to put “peaceful pressure campaign” on NK and elections in Germany & NZ this week coupled with a snap poll for JP next month (mild political risks).

Another report that China/PBOC is now considering further financial liberalization to ease its capital/currency controls and opening up of the financial sector may be also boosting the overall market (risk-on) sentiment; PBOC has already made Yuan significantly higher in the last few months and thus it’s now ready for sweeping economic reforms including less control over its currency ahead of the 19^th communist party congress next month.

Yesterday US has also indicated that they have some war strategy that will prevent any cascading NK attack on SK in case of a war, without divulging much details about it. Market may be also worried about any drastic change in US policy under Trump for the Iran nuke deal and any trade war stance against China. But some optimism about US tax reform policy & Trump’s ability to pass his legislative agenda on the strength of his bipartisan stance may be also helping USD/US bond yields/US stock market apart from hopes of an upbeat Q3 earnings.

Overnight US market closed in positive; DJ-30 gained by around 0.28%, S&P-500 was up by 0.15% to close around 2504 and NASDAQ edged up by 0.1%, helped primarily by banks on higher US bond yields favourable for their business models, but dragged by techs, especially Amazon on concern of viability of its new subscription business model. Market may be also expecting some breakthrough in the US healthcare bill issues by this month.

US stock future (SPX-500) is now trading around 2503, almost unchanged on muted Asian cues ahead of EU market opening. USDJPY gained some pips on talks of an early JP election by next month favourable for Abe amid his increasing popularity on NK missile crisis handling and an unprepared oppositions; Abe may continue JP QQE for more time while BOJ may be tinkering some back door/indirect QQE tapering under Kuroda, whose term will end next year.

Elsewhere, Australia (ASX-200) is closed around 5714, edged down by almost 0.10% on higher AUDUSD (negative for export heavy AU market), pressure of airlines(disruptions in NZ airlines), media & healthcare stocks; but was helped by banks & financials on prospect of higher US bond yields, telecoms (upbeat results from TPG telecom), basic materials resources/metals stocks (higher metal prices today).

AUDUSD is now trading around 0.7987, up by almost 0.35% tracking the RBA minutes today which was basically upbeat AU economic outlook & improving labour market although it was worried about rising household debt and a strong AUD. As par RBA, further rise in AUD may affect GDP & inflation; but the strength in AUD may be also a function of weakness in USD. Thus RBA minutes may be less dovish than market was expecting and coupled with that an upbeat AU house price index data for Q2 at +1.9% (YOY) may have also boosted the AUD today.

Japan (Nikkei-225) was the brightest spot in the Asian/Global market so far today after yesterday’s holiday; it closed around 20299, up by almost 1.86% to catch up the global market & closed above the 20k level on weakness in Yen as USDJPY is now trading around 111.75 on hopes of hawkish Fed tomorrow coupled with renewed optimism about US tax reform.

Also, a JP snap poll next month may have also increased the winning probability of Abe, who may continue the QQE policy further in 2018, negative for Yen. But Abe may also tinker with some idea of fiscal stimulus and may also hike the JP sales tax from 8% to 10% to stimulate inflation & growth. All eyes may be on the BOJ meet day after tomorrow for any indication about backdoor QQE tapering.

JP market was today helped by insurers, mixed banks & financials on higher US bond yields, exporters, automakers, techs (Nintendo), energies but dragged by some glass makers (Asahi Glass).

China (SSE) closed around 3357, stumbled by almost 0.18% on recent spate of mixed economic data coupled with some concerns of tighter liquidity ahead of long seasonal holiday from 1^st Oct (Q3) and quarterly health checks of commercial banks by PBOC. Almost all the sectors has dragged the China market today except property stocks on improving data.

PBOC today fixed the mid-point of USDCNY a little higher at 6.5530 vs 6.5419 yesterday and injected 150 bln Yuan to ease tighter China money market ahead of advance corporate tax payments & holiday seasons. PBOC is also planning next stage of economic/financial market liberalization for China actively to attract more FPIS.

Hong-Kong (HKG-33) future is now trading around 28050, wobbled by almost 0.30% on concern of stretched valuations of property developers and general caution ahead of Fed tomorrow; some rate sensitive stocks are dragging the market today.

Also, certain coal miners, China based property developers’ area dragging the market after recent strength of Yuan. But Tech/IT shares are helping the HK market today on auto related e-commerce platform development. Overall Asia-Pacific markets are today consolidating in a range for lack of any meaningful clues.

Meanwhile, Crude Oil (WTI) spot is trading around 50.20, up by almost 0.60% on optimistic demand/rebalancing forecast by IEA/OPEC, coupled with some weekly decline in number of US oil rigs and less export by Saudi Arabia and gradual resumption of US refineries in the Harvey affected Texas area.

EU Stocks Drop On Concern Of A Dovish Fed As A Strong EURUSD May Not Be Good For EU Export Heavy Index:

Elsewhere, EU market is trading almost flat at Stoxx-600 with a slight negative bias (-0.01%) ahead of Fed on concern of a dovish Yellen, which is negative for USD and export heavy EU market. DAX-30 is down by around 0.10%, while CAC-40 is up by almost 0.07% and FTSE-100 rallied by around 0.55%

FTSE is upbeat today on some pull back in GBPUSD after Carney sounds less hawkish than expected yesterday coupled with a reported resignation threat by Brexit minister Johnson over his differences with Theresa for some Brexit deals differences over the huge divorce payment.

EU market is being dragged by Heineken today after 5.24% stake sell by Mexico’s Femsa; but some super market stocks are helping the overall market sentiment for optimistic outlook. Overall, consumer goods & basic materials has declined, while energies & industrials are helping a bit.