Market Wrap: 21/09/2017 (17:00)

NSE-NF (Sep):10137 (-30; -0.30%)

(TTM PE: 26.26; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10122; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):22849 (-175; -0.70%)

(TTM PE: 27.96; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24799; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 22/09/2017:

Key support for NF: 10090-10045

Key resistance for NF: 10160-10205

Key support for BNF: 24650-24500

Key resistance for BNF: 24950-25075

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 10185-10160 area, NF may fall towards 10090-10045 & 10000-9960/9915 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25075 area for further rally towards 242150-25250 & 25350 -25585 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25025-24950 area, BNF may fall towards 24800-24650 & 24500-24250 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 10137, slipped by almost 30 points (-0.30%) after making an opening session high of around 10174 and pre-EU session low of 10073 in a volatile day of trading marked by an unexpected “hawkish” hold by Fed coupled with some rumour that Indian CEA has resigned; but market recovered soon after Govt denied such “baseless” report by Reuters and boosted further on short covering tracking some fiscal stimulus signals by the Govt (FMO).

Today, Indian market after opening gap-down around 10052 (-17), has gone further lower on concern of a hawkish Fed; although a higher USD may be good for the export heavy Nifty index (Pharma, IT), it may be not good for the overall Indian economy, being an import oriented economy; Pharma supported the market today on higher USD, favourable for their exports and also on renewed regulatory optimism coupled with bargain hunting.

Also, a higher USD may not be a good news for the Indian corporates’ BS/debt profile as they have taken heavy debt from various external/foreign sources; it may not be a good news for banks/RBI also as further rate cuts hopes may be diminished in the face of hawkish Fed. A global QT may be also a bad news for the overall FPIS & also FDI inflows for India on concern of outflows.

Apart from Fed panic, Indian market sentiment may be also affected early today after reports of Govt CEA’s (Arvind Subramanian) early resignation rumour before his term ends; but that report by Reuters was later denied by the Govt and market has also recovered subsequently.

Govt CEA may be under pressure from all quarters due to slow down of Indian economy after DeMo & GST where GDP growth is now around 5.7%, at three years low. Govt is also trying its best to assure the market by signaling various fiscal stimuli (trial balloons) for the economy subject to PMO approval.

Govt today has indicated new PPP policy for affordable housing and also gave hint to bring the housing sector under GST; Govt may be also looking for incremental investments in roads & railways and likely to tweak the GST refund rule for exports to help exporter’s cash-flow after recent issue of huge input tax credit claim, still unprocessed. Govt may be also looking to RBI for an active FX management (jawboning & intervention) to aid exporters by currency devaluation.

For MSMES, Govt may allow increasing working capital norms from present 90 to 180 days and may also provide some lending interest rate relief (subvention/subsidy). Govt may also likely to top up PSBS recapitalization by an additional amount of Rs.25000 cr from the budgeted figure of Rs.15000 cr.

Thus, Govt may focus on fiscal stimulus for exporters, MSMES, PSBS and also on infra capex and for these Govt may be also ready to deviate from the FRBM path (fiscal discipline) for the sake of structural reform as revenue projection from various sources (direct & indirect taxes, GST, telecom) may be subdued this year.

Overall, Govt may be planning for a Rs.40000 cr of fiscal stimulus package, even if it requires some fiscal slippages; but such fiscal slippages may not amuse the rating agencies or the FPIS and thus this may be a double whammy for the Indian economy now; overall Govt may be expecting a revenue shortfall of around Rs.50000 cr.

Telecom, which has a significant contribution for the Indian GDP by more than 6%, may be also now in huge stress for the R-Jio led disruptions and that may also affect Govt revenue in terms of spectrum auction, telecom revenue etc. Also, significant job losses, plunge in telecom infra spending may be on the card beside fear of telecom NPA with the banks.

Thus stretched valuations, falling GDP & huge banking NPA, subdued private investments may be some of the major headwinds for the Indian market right now and FIIS are in sell mode; but it’s the domestic liquidity, which is preventing the market from falling down and balancing the FIIS pressure.

INR was also under pressure on hawkish Fed & concern of Indian fiscal slippages; Indian GSEC bond yields goes higher to 6.676 (+1.47%) as RBI rate cut hopes diminished, not a good news for the banks, rate sensitive stocks and the overall market.

Nifty was today helped by HDFC, DRL, TCS, Sun Pharma, Cipla, TECHM, Lupin, Kotak Bank & Hero Motors collectively by around +21 points, while it was dragged by ICICI Bank, RIL, HDFC Bank, ITC, Eicher Motors, ZEEL, IBULLS HSG FIN, Bharti Infratel, Axis Bank & HCL Tech by combined -30 points.

Globally, most of the Asia-Pacific markets were in red today except Japan tracking mixed global cues after hawkish hold by Fed yesterday. As par expectations, Fed will start its BS tapering from Oct’17 onwards @10 bln/pm and hold the rate for the time being; but it forecasted a stronger dot-plot for the Dec’17 rate hike probability with three more hikes in 2018 and two hikes in 2019; thus basically projected a terminal rate of around 2.75% by 2019 from the present level of 1.25% by hiking six more times @0.25%.

Fed is supposed to taper the BS/QE bonds (reinvestment of the principle amount) by $10 bln/pm and then increasing it by another $10 bln every three months, subject to a maximum pace of $50 bln/pm or $600/pa; as a result, US bond yields may actually go higher. Market may be little worried that as this being a new experiment by a central bank, never tried before, the ultimate result is unknown or at least this is an uncharted territory.

Higher dot-plots for Dec’17 rate hike coupled with Yellen’s hawkish stance yesterday, shrugging off the economic damage of US hurricanes, subdued inflation has caught the market on wrong foot and USD soared on short covering; basically Yellen looks & sounds more hawkish than market expected as she signalled a definitive Dec’17 rate hike (dual QT).

Fed Chair also termed the persistent lower inflation in US despite a tight labour market & decent wage growth as “Mystery” and also acknowledged indirectly about the theory of automation, globalization & other structural issues for the subdued US inflation despite massive QQE; these structural issues can’s be solved by a central bank through its ultra easy monetary policy.

Thus, Fed has no issue in joining the global chorus of QT (Quantitative Tightening) and Asian market may be nervous for this Fed/global central banks deleveraging, although a higher USD may be good for the export heavy Asian & EU markets.

After Fed turned unusually hawkish, market may be now also convinced that it’s now really a matter of time, ECB will also join the global QT bandwagon officially and announce a definitive QE tapering plan next month; a lower EUR because of hawkish Yellen yesterday may also provide Draghi a much needed space to announce the inevitable ECB monetary policy normalization. FFR is now showing around 65% probability of a Dec’17 rate hike move by Fed against 45% prior to Fed meet yesterday.

Overnight US market edged higher after initial slump on the back of financials as higher USD/US bond yields are favourable for their business model, although a higher USD may not be good for the overall US market, for their export earnings & the perception of higher imported inflation. Techs/FANG stocks dragged the market coupled with utilities, consumer staples, & other rate sensitive sectors.

Apple also dragged the US market yesterday on disappointing i-Phone8 pre-booking numbers and some technical issues with the new models & i-Watch. DJ-30 closed almost 0.19% higher, while S&P-500 was almost flat (+0.06%) and tech heavy NASDAQ dropped by 0.08%. DJ-30 was supported by sharp gains in McDonald’s & Pfizer.

US Stock Fut (SPX-500) is now trading around 2506, almost unchanged on mixed global/Asian cues after a hawkish script by Yellen yesterday.

Elsewhere, Australia (ASX-200) is closed around 5655, tumbled by almost 0.90% on hawkish Fed and dragged by metals, utilities, industrials & gold miners after USD soared; but it was helped by energies & alumina on higher oil & aluminum prices today.

Although theoretically, banks should gain for higher bond yields for their ability to increase interest rates, it’s down today for concern of high AU household debts. Market may be also concerned that due to high leverage of AU household BS, RBA may also follow Fed in the months ahead and raise its rate. CBA was in limelight today after its deleveraging news (selling of all the AU & NZ life insurance arms to AIA group).

AUDUSD (0.7957) is down today (-0.75%) on hawkish Fed coupled with slight dovish tilt by RBA Gov today, who commented that AU rates will likely to go up than go down, but not for some time as inflation & wage growth is still subdued; also rising rates abroad (US/CA) have no automatic implications for AU. A weaker AUD today may have also contained the overall AU stock market fall today after Fed goes in deleveraging mode, affecting the global addiction of monetary stimulus for the market.

Japan (Nikkei-225) closed around 20347, edged up by almost 0.18% on weak Yen, favourable for its export as USDJPY is now hovering around 112.60 (+0.32%) after Fed surprised the market with its latest dot-plots projection for a high probability Dec’17 rate hike. Banks & financials has also helped the JP market today on account of higher bond yields favourable for their NIM/operating profit. USDJPY got further boost today after BOJ Kuroda sounds dovish and commented that “Fed or ECB policies (QT) has no direct impact on BOJ policies”!!

But JP market also retraced today from its day high of 20481on account of M&Q squabbling involving Toshiba & Western Digital; also major exporters declined today despite a weaker Yen, but automakers, energies helped the market.

China (SSE) closed around 3358, dragged by almost 0.24% and well off the day high of 3378; it was dragged by developers (higher mortgage rates by banks) & basic materials (lower commodities/metals as USD goes higher), but helped by financials on higher bond yields. PBOC today fixed mid-point of USDCNY at 6.5867 vs 6.5670 yesterday on higher US yields with a net injection of 60 bln Yuan through OMO.

Hong-Kong (HKG-33) Fut is now trading almost unchanged at 28105; so far it made a session high of 28170 in the early Asian session & late day low of 28030 on upbeat financials and energies but dragged by basic materials and China based developers & resources players.

Overall HK & regional market sentiment may be also affected today, after HK’s de-facto Central Bank commented that Fed & global tightening (QT) may lead to capital outflows from the Asian financial hub or EM.

Meanwhile, Crude Oil (WTI) is trading around 50.50, down by almost 0.45% on higher than expected gluts in Crude oil & gasoline coupled with concern of a hawkish Fed & higher USD despite Iraqi jawboning ahead of planned OPEC-NOPEC meet on Friday; Russian oil minister has also denied any official proposal for oil production cut extension yesterday.; so far it made a high of 50.72 yesterday tracking OPEC jawboning.

EU Market Edged Higher On Weaker EUR:

Elsewhere, EU market edged higher on lower EUR (favourable for their exports) and upbeat financials & banks on higher bond yields & NIM/operating margin; Syoxx-600 is now trading around 0.18% higher, while DAX-30 is up by almost 0.30%, CAC-40 gained by around 0.55%, but FTSE-100 is down marginally by 0.15%.

Utilities, basic materials/miners, consumer goods cos & also gold miners are dragging the market to some extent, while energies & industrials are helping. A higher GBP today also dragging the UK market today.