Market Wrap: 26/09/2017 (17:00)

NSE-NF (Sep):9856 (-23; -0.23%)

(TTM PE: 25.71; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 9871; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24193 (-6; -0.02%) (TTM PE: 27.28; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24199; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 27/09/2017:

Key support for NF: 9825-9775/9745

Key resistance for NF: 9920-9970/10000

Key support for BNF: 24050-23850

Key resistance for BNF: 24300-24600

Hints for positional trading:

Technicals indicate that, NF has to sustain over 9920 area for further rally towards 9970-10000/10050 & 10105-10150 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9900 area, NF may fall towards 9845/9825-9775/9745 & 9695-9645 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24350 area for further rally towards 24525-24600 & 24700-24875 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24300 area, BNF may fall towards 24050-23850 & 23700-23600 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 9856, almost flat (-0.23%) after making a mid-session low of 9825 and late day high of 9904 amid ongoing dilemma of a credible fiscal stimulus package and fiscal slippages despite some late recovery of the global/Asian markets (HK) shrugging of China slow down fear and NK “war” rhetoric after reports that both US & Russia may be engaged in back channel talks for an acceptable diplomatic solution of this NK crisis.

After “power stimulus” disappointment, market today got some boost tracking recovery in EU market as EUR goes lower amid fresh EZ political concerns; China/HK market also recovered from earlier losses on renewed optimism. But Indian market could not sustain the 9900 level even after a Govt source based trial balloon about some modified export policy keeping in mind the ongoing GST refund concern. Govt may also monetize NHAI highways in the days ahead on toll-operate-transfer basis and various PE funds are showing interest.

But, Crude oil hitting above $52 may have raised some concern in the market as above $55-60, Govt may force to cut the excess ED imposed earlier, which may further jeopardize the whole fiscal math; market is worried that eventually, fiscal deficit may hit around 4% of the GDP, under this dual combination of higher Govt capex, lower revenue coupled with falling GDP and thus FIIs are in selling spree.

Thus market may be haunting for its own stimulus on concern of stretched valuation, fiscal math mismatch & a falling GDP. All eyes now may be on the Govt capex which is so far supporting the Indian GDP on its own amid lack of sufficient private capex & consumption demand. Govt may have also miscalculated various aspects of GST disruptions by a hurried launch keeping an eye on the forthcoming elections without bringing the stakeholders confidence in the new system.

Thus the ongoing GST “trial & error” method may be also affecting the morale of the market participants as not only Q1, but Q2 earnings may be affected severely for post-GST implementation related disruptions. Overall, adverse effect of a poorly implemented DeMo & GST may be now clearly visible on the overall economic activity apart from some so called past policy paralysis. Today ADB downgraded Indian GDP both for FY-18 & 19 and may have further affected the overall market sentiment.

Nifty was today supported by VEDL, ONGC, ICICI Bank, Infy, Axis Bank by around 12 points, while it was dragged by Bharti Infratel, HUL, HDFC, TCS, BPCL, HDFC Bank, Asian Paints, Maruti, M&M and DRL collectively by almost 15 points. Overall, metals, reality/property developers and energies has supported, while telecom, IT, media & entertainment and FMCG dragged the market today.

Indian Market Slips Further On Muted Global Cues Coupled With A “Toothless Power Stimulus” By The Govt And Fiscal Woes:

Indian market today opened edged down tracking muted global/Asian cues and slips further ahead of EU market opening; market may be trying to figure out “anything positive” from the “Power Stimulus” announced by the Govt yesterday for providing “free electricity” to certain eligible people, which may cost around Rs.16320 cr to the exchequer as “subsidy”. Govt has also formed a new PM-EAC to prescribe the PMO some “stimulating drugs” to stimulate the economy.

But market may not be convinced so far, considering the nature of fiscal stimulus and its real effectiveness to treat the “disease” and coupled with that concern of fiscal slippages, stretched valuation, muted Q1 earnings, expected earnings downgrade for H2FY18 and ongoing NK tensions may have made the FIIs jittery and it seems that they are on selling rampage.

Market may be also concerned that Govt will be in a populist mood ahead of state & general elections next year and thus election doles (fiscal stimulus) may cause significant fiscal woes in the coming days.

As a part of reform measures, Govt may make the INR fully convertible and ensure that India have a fair amount of relevant economic data like a DM, so that policy makers or even the new PM-EAC can take policy decisions based on such data (like monthly retail sales, employment report, housing report etc). So far Indian policy makers are driving the economy like “driving a car without headlights in the night” in absence of sufficient “leading” economic indicators in the country, which is a legacy problem.

As par some reports, GST collection for Aug till yesterday may be around Rs.80000-85000 cr against Rs.95000 cr for July (including ITC); thus the overall GST collections may not be quite encouraging and Govt’s fiscal math may looks even tough going forward.

Globally, almost all the major Asia-Pacific markets are in red tracking subdued global cues after another round of NK “war” rhetoric last night and fall in tech related shares. In an unscheduled presser, NK foreign minister has termed UN & weekend speeches/comments of Trump, threatening NK as a “declaration of war” and thus NK has the right to shoot down any US strategic bombers in the LOC between NK & SK, even if they are not in actual NK airspace, as it’s the US which first declared war on NK.

On the weekend, US also flies its strategic bombers over NK-SK LOC air space (neutral zone) as a show of force to the “little rocket man”, who earlier has promised for “rockets deep inside the US mainland”. Although US has termed the latest NK narrative as “absurd”, it also said that “war” is an option. As par latest SK reports, NK has strengthened its military defence along its east coast border, where US has showcased a strategic bomber plane on the weekend.

Thus, we have some risk aversion move in USD despite some optimistic Fed talks yesterday amid “mystery” of inflation coupled with hopes of an imminent US tax reform draft proposals; EUR was also under pressure for renewed EZ political risks after disappointed election outcome from Germany coupled with emergence of an anti establishment party with significant strength, which may force Merkel for a much compromised “Jamaican coalition” Govt or even call for a 2^nd election in the months ahead.

Market may be skeptical that although a lower EUR because of EZ political jitters may prompt Draghi to announce the much awaited ECB QE tapering plan sooner rather than later, it may also force ECB to be on the neutral side with present accommodative policy for a longer period. But a lower EUR is also good for EZ export & the overall EU economy & the EU export heavy market.

Overnight US market closed in negative amid escalated “war of words” between NK & US; it was further dragged by Techs/FANG stocks as a hawkish Fed and subsequent global QT is bad news for “easy money availability” and subsequently for the start up/tech cos. Also new i-Phone 8 model disappointment is dragging Apple & the whole tech sector.

US market was further dragged by Banks & Financials as bond yields drop following renewed NK jitters yesterday, while helped by energies (higher oil because of Turkey-Kurdish issue) and some retails (Walt Disney). DJ-30 was dragged by 0.20%, while SPX-500 has lost 0.20% and closed around 2496, while tech heavy NASDAQ slumped by almost 0.90% on Apple woes.

US stock future (SPX-500) is now trading around 2494, almost flat (-0.15%) on muted Asian cues amid renewed saber rattling by NK ahead of EU market opening.

Elsewhere, Australian Market (ASX-200) closed around 5671, dragged by almost 0.20% on weak financials & banks, consumer discretionary, IT/Techs & healthcare stocks; while it was helped by basic resource materials & energies and also exporters as AUDUSD is down today by around 0.12% and is now trading around 0.7928.

Japan (Nikkei-225) closed around 20330, dropped by almost 0.33% on higher Yen as USDJPY slumped to low of 111.48 from 112.33 high of yesterday after renewed NK saber rattling and optimistic but not so much hawkish Fed talks yesterday; a strong Yen is not good for export heavy JP economy & the market. JP stocks were today dragged by exporters, techs, banks & financials, while helped by energies.

USDJPY recovered slightly in the morning Asian session today after release of slightly hawkish (?) BOJ minutes, which indicated that JP policy makers were optimistic about inflation/consumer prices and commented that the 2% CPI is a global standard and is hard to maintain for flexible monetary policy & its eventual normalization. Thus, BOJ may be ready to lower their CPI target as it’s elusive & a mystery so far.

As par JP FM, growth is more important for them and the economy is not at a stage to consider VAT above 10% and ageing demography/falling population may be the biggest long term problem for JP. Today service PPI for JP also came upbeat at +0.8% for Aug against estimate/prior of 0.6% (YOY).

China (SSE) edged up by almost 0.06% in last hour of trade and closed around 3344 on bargain hunting in the property developers stocks & resource firms after recent sell off following China regulatory action to prohibit resale of the properties between 2-5 years in selected eight cities; material stocks were down by environmental concern. Today China market was dragged by banks & healthcare stocks

Market may be convinced that ultimately Chinese Govt may not allow any disorderly market movement and will ensure stability of the financial market at any cost to ensure social & political stability ahead of the Party Congress next month. This came after China securities regulator comments late yesterday (Monday) that maintaining market stability is of “extreme importance” and is a “political risk”.

Today PBOC fixed the mid-point of USDCNY at 6.6076 vs 6.5495, significantly higher and drained 80 bln Yuan by daily OMO; a higher USD is good for China’s export and today’s fixation may be also an indication of China’s intention to keep its overall export oriented economy stable, which is the manufacturing powerhouse of the world.

Hong-Kong (HKG-33) future is also edged up from earlier deep loses tracking rebound in China market; it’s now trading around 27550, up by almost 0.10% and well off the day low of 27285 so far on bargain hunting of China based property developers and further supported by energies.

Regional market sentiment also got some boost after ADB maintained China’s GDP for 2017-18 to 6.7-6.4% after recent S&P downgrade on excessive Chinese leverage (credits). As par China Govt, China is now clearly on the deleveraging path and growth of the previous leverages are now clearly slowing & stabilizing.

Meanwhile, Crude Oil (WTI) is now trading around 51.95, down by almost 0.45% after an overnight rally to 52.26 on reports that Turkey Govt may stop flows of Crude Oil from Iraq to the rest of the world in response to Kurdish autonomous region’s bid for the independence. Also, hopes for faster rebalancing and resumption of US refineries may be boosting the morale of Oil bulls apart from ongoing OPEC jawboning about extension of the production cut agreement beyond March’18. But fall in demand from China & India may be also a concern.

Technically, WTI now need to sustain above 52.75 zone for further rally towards 55 area; otherwise it will come down in the days ahead.

EU Stocks Struggling For Direction Amid Fresh NK Tensions Coupled With EU Political Concerns:

Elsewhere, EU market is also trading almost flat in Stoxx-600, which is now up by around 0.15% on fall in EUR amid fresh concerns of ant-establishment politics in EU after surprised strength of AfD in the recent German poll, which may also force Markel for a “Jamaican Coalition” Govt or even go for a 2^nd poll. But overall sentiment may be gloomy because of possible policy paralysis not only in Germany, but across the EZ (Italy, Spain, France) because of increasing chorus of anti-EUR, anti-immigrant and anti-establishment politics.

Also, risk aversion move after fresh NK tensions is affecting the broader EU market sentiment today. Overall, EU market today was supported by FMCG (Nestle) on share buyback plans & optimistic guidance about organic growth coupled with energies (oil above $52) and exporters while media cos dragged the market.DAX-30 is up by almost 0.18%, while FTSE-100 is down by around 0.10% and CAC-40 is almost flat (+0.04%).Strength in GBP is affecting the export heavy UK market today.