Nifty Edged Down Amid Muted Global Cues After An “Expected Warning Missile” Launch By NK Over Japan Coupled With Concern Of Stretched Valuations & Buzz Of Higher Investments By EPFO

Market Wrap: 15/09/2017 (17:00)

NSE-NF (Sep):10096 (-19; -0.19%) 

(TTM PE: 26.26; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10085; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24845 (-84; -0.34%) 

(TTM PE: 28.01; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24844; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 18/09/2017: 

Key support for NF: 10040-9975

Key resistance for NF: 10160-10205

Key support for BNF: 24700-24500

Key resistance for BNF: 25050-25150

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10160 area for further rally towards 10205-10250 & 10325-10385 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10140 area, NF may fall towards 10100-10040 & 9975-9925 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25050 area for further rally towards 25150-25250 & 25350-25500 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25000-24975 area, BNF may fall towards 24700-24500 & 24400 -24250 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 10096, edged down by almost 19 points (-0.19%) after making an opening session low of 10065 and late day high of 10132 in a day of moderate volatility. Indian market today opened around 10080, gap down by almost 37 points tracking mixed global cues after NK “tested” another ICBM today early in the morning over Japan, which is capable to hit US pacific military base Guam as par its earlier commitments.

But, overall global risk aversion flows were quite muted as this missile launch by NK was in expected line and coupled with that some real estate linked sudden rebound in HK market, Indian market also tried for a similar rebound, but it failed in the 1^st half of trade.

Indian market again tried to recover (short covering) in the post noon session amid some reports that EPFO is planning to increase its equity investments from present 15% to 25% of the investable corpus and is seeking FMO approval. But it dropped again in the closing session, when EU reacts with the news that today’s London metro blast is an act of terrorism.

Apart from NK saber rattling, stretched valuations may be the primary concern for the market and thus it’s not being able to break the life time high of Nifty around 10138, despite repeated attempts; there may be some lack of conviction.

Overall for the Indian market, it now seems that FIIS are in selling mode for rising Korean geo-political tensions, global QT bandwagons and coupled with that stretched valuations, muted Q1 earnings, falling GDP & rising inflation and widespread farm loan waivers across the states, NPA & concern of fiscal imbalance may be some of the headwinds.

Thus FIIS are consistently selling for the last few weeks despite some green shoots and attraction of 4-D (Modinomics-demand, demography, democracy & de-regulations); NK tensions may be just an excuse.

As par latest IMD update, overall monsoon may be slightly below normal (-6%?) this year in India and this may not be good for the overall rural economy considering widespread floods across the nation, which has also affected the food inflation quite dramatically in the recent times; coupled with that, petro inflation and overall price instability in India may be also affecting the consumer spending & growth.

Also, as par some reports, cheaper imports are substituting local manufacturing after DeMo coupled with drastic fall in export; all these are GDP negative. So far, incrementally higher Govt capex may be helping the Indian GDP to a great extent amid subdued private capex; but going forward Govt may also feel stretched & imbalance in the fiscal math.

For the Indian middle class salary earners, discretionary consumer spending may be also looking tough day by day as their salaries now barely covers the basic needs & loan EMIs; Indian household BS may be also stretched.

Another UN report also forecasted slower GDP growth for India in the coming days coupled with higher unemployment rate for adverse effect of DeMo & GST on informal sector.

Nifty was today supported by Infy, ONGC. HDFC Bank, Bajaj Auto, TCS with collective contribution by around +7 points.

Nifty was dragged by ITC, IOC, Indusind Bank, ICICI Bank, SBI, RIL, Tata Motors, Axis Bank, DRL, Auro Pharma by combined -10 points (approx).

Overall, power generation & distribution cos are in severe pressure for shortage in coal and low hydro power generation in drought affected southern states; DRL was down as a UK drug firm has filed a patent lawsuit against it; Lupin was in positive limelight after reports of favourable plant inspection audit by US FDA. ONGC was up by over 4% on “upbeat” prospects of oil as it is now hovering around $50.

Banks were also under pressure and dragged the overall market sentiment for adverse Fitch report pointing to huge capital requirements by 2019 for Basel-III norms & low credit growth. Although HDFC bank bucked the trend, HDFC was in pressure for SEBI lens on its HDFC Life IPO, raising some questions.

As par some reports, Aircel may invoke bankruptcy of his own under IBC and in that scenario, its exposure of Rs.11900 cr Indian debt has to be provided as provisions for 50% immediately and rest within next 180 days; thus lenders of Aircel like SBI, BOB, PNB, Syndicate and J&K Banks were under some pressure today.

Meanwhile, India’s current account deficit (CAD) for Q1FY18 increased sharply to $14.3 bln; (i.e. 2.4% of GDP vs 0.1% YOY; 0.6% QOQ) primarily due to rise in trade deficit; not a good news for the policymakers as FPIS outflow may increase in the days ahead in lines with global tunes of QT (Fed/ECB/BOE/BOC).

But, for Aug, exports grew at a healthy pace at 10.3% YOY to $23.82 bln, while imports were at $31.46 bln, up by almost 21% on YOY basis. In July, exports grew at 3.9% and thus improving figure in Aug may also provide policy makers some relief as the economy is struggling due to weak domestic demand after DeMo & GST disruptions.

Globally, most of the Asia-Pacific markets were in red today after NK launched another ICBM early in the morning today over JP airspace towards and flew by around 3700 km, following its threat yesterday to “sink JP & reduce US mainland into ashes & darkness by a Nuke”!!

NK has termed it as a part of normal process to boost its nuke self defence and indicated that dialogue will only begin, when US scraps its hostile policy & sanctions for NK; it’s not intended for JP being a symbolic launch.

But overall risk aversion flows to the safety of heavens (Yen, CHF, Gold, Bonds) may be quite muted till now as this launch was in expected line. NK was reported for preparing another ICBM for the last few days after US/UN sanctions. Market may be also gradually habituating for such frequent NK provocations & ongoing “war of words” between Kim & Trump until some serious miscalculations by both of the sides.

So far, today’s US reaction is very limited & measured calling for China & Russia for more “pressure” on NK and Trump has not tweeted till now his rhetoric about the latest NK ICBM launch. But, this whole NK issue may also invite some trade protectionist & sanction measure against China by US for not agreeing to an all out oil embargo on NK.

As par China, this is not possible as it may pose more risk from NK at its border and due to porous border; an all out sanction may not be so much effective. China also said that it does not hold the key to Korean crisis and China has already made enormous sacrifices and paid a price to implement the UN resolutions; thus various directly involved parties (US/SK/JP) should take the responsibility on Korean peninsula issues.

Thus, until “war of bullets/nukes”, all such “regular” NK provocations & subsequent market volatility may be an opportunity for both traders & investors. Kim/NK provocations may be also positive for US defence industry as JP  & NK has already increased their defence budget significantly to “combat” NK, which may be also good for the economy of both the countries (fiscal stimulus). Frequent NK missile & nuke games may be also helping the US economy & Trump to keep USD lower for its export benefit & imported inflation.

Overnight US market closed mixed over fear of another NK ICBM launch despite an upbeat US CPI data yesterday; USDJPY was unable to sustain over the 111 mark, equivalent to 10YUSTSY yields of 2.20%. Also, some confusion about Trump’s tax deal with some of his opposition DNC members at a WH dinner party may have affected the overall US market sentiment yesterday. Apart from NK ICBM, USD also suffered some blow in the early Asian session today after US TSY Sec has expressed some reservations of Fed QT for the sake of US growth.

DJ-30 closed around 0.20% higher, while S&P-500 lost 0.11% & closed around 2496 and NASDAQ dragged by almost 0.48%; Boeing has helped DJ yesterday after analyst (DB) upgrade for this aerospace & defence stock/sector. But techs, consumer discretionary were under pressure, while energies has helped the market by some extent. US Stocks Fut (SPX-500) is now trading almost flat around 2494 (-0.07%) after some initial drops tracking the NK ICBM flight path, which ultimate has no risk over the JP soil and blasted deep into the pacific!!

Overall, apart from NK rhetoric, market may be quite cautious after hawkish hold by BOE yesterday, indicating an imminent rate hike move by next 3-6 months to combat the higher trajectory of UK inflation, now around 3%, if overall economic data looks good (i.e. data dependent).

Fed & ECB are also poised to announce their QE tapering soon and BOC has already hiked twice in the last two meets. A global QT may not be good for the risk assets in 2018 and yesterday’s sudden improvement in US core CPI may also help Fed to keep its hawkish tilt in the coming months.

Even if Fed does not hike rate in Dec’17, its BS tapering may also help US bond yields to rise as Fed will sell its QE bond holdings in the market (although it may be very gradual @10 bln/month for next 10 years).

Elsewhere, Australia (ASX-200) closed around 5695, down by almost 0.80% on NK missile risk aversion moves, negative for the metals & commodity currencies; AUDUSD is almost flat now around 0.7997 (-0.06%). Today AU market was dragged by metals, miners, basic materials & resources and also by banks & financials, while helped to some extent by energies.

Japan (Nikkei-225) closed around 19909, up by almost 0.50% bucking the regional trend as NK risk aversion move for Yen was basically limited today; USDJPY is now trading around 110.65, moved higher after NK panic low of 109.87 earlier. JP market was today supported by Toshiba’s ongoing deleveraging news with Western Digital, some exporters, auto manufacturers, electronics, banks, energies & Pharma cos, while dragged by some retailers & consumer stocks. Overall optimistic JP economic prospect may be also helping the market today and it’s able to close around 3.2% higher for the week on recent rebound in USDJPY.

China (SSE) closed around 3354, down by almost 0.53% dragged by metals/miners, banks & financials after yesterday’s subdued economic data coupled with overall NK related risk aversion & trade sanction move. But optimistic GDP projection (6.7%) by some analysts (Macquarie) may have also contained the overall damage today.

PBOC today fixed the middle-point of USDCNY little lower at 6.5423 vs 6.5465 yesterday with a net injection of 200 bln Yuan; this week PBOC has injected total 260 bln Yuan through OMO against 330 bln net drain last week. Thus PBOC is now taking a more soft approach after recent spate of tightening.

Hong-Kong (HKG-33) is now trading around 27785, almost unchanged, but well off the NK panic day low of 27465 on smart recovery of some of the leading property developers & banks, following upbeat Govt reports about housing sales & investments. Also, some internet firms, resource co related to China story of ethanol use in the auto fuel, steel manufacturer (M&A news) and energies has helped the HK market today despite general NK jitters.

Meanwhile, Crude Oil (WTI) was trading around 49.45, down by almost 0.85% after some overnight rally to almost 50.48 on forecast of better demand & tighter supplies by IEA/OPEC; today WTI may be down for NK tensions & oil embargo issues apart from recent strength in US; also recent surge in gasoline use may be due to Harvey/Irma factor (seasonal/one time) and forecast of colder weather in the coming months may be also positive for NG & negative for WTI.

Technically, WTI now has to sustain above 50.50 zone for next leg of rally towards 52.50; otherwise it may come down again.

USDJPY Is Upbeat On Hopes Of A Hawkish Hold By Fed Next Week In Line With BOE & US Tax Reform Despite Ongoing NK Saber Rattling

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