Market Wrap: 12/09/2017 (17:00)

NSE-NF (Sep):10105 (+79; +0.79%)

(TTM PE: 26.28; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10093; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24780 (+120; +0.49%)

(TTM PE: 27.94; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24785; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 13/09/2017:

Key support for NF: 10045-10000/9980

Key resistance for NF: 10115-10160

Key support for BNF: 24725-24500

Key resistance for BNF: 24875-24950/25050

Hints for positional trading:

Time & Price action suggests that, NF has to sustain over 10115 area for further rally towards 10160-10205 & 10250-10325 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10095 area, NF may fall towards 10045-10000/9980 & 9940-9850 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24875 area for further rally towards 24950-25050 & 25150-25250 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24825 area, BNF may fall towards 24725-24600 & 24500 -24350 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 10105, soared by another 79 points (+0.79%) after making an opening session low of 10037 and closing hours high of 10114 on positive global cues boosted by NK & Irma risk-on global relief rally in USD/US bond yields.

Indian market today opened in positive tone around 31 points gap up tracking upbeat global cues on relief from Irma & NK dooms day like scenario and coupled with that, a strong opening of EU market amid some weakness in EUR has also boosted the domestic market sentiment. Thus, subsequent short covering & some bargain hunting ahead of CPI & IIP data may have also helped the market today to close at five months high.

Before EU market opening today, Indian market was trading in a narrow range on lack of any meaningful domestic triggers. Also, stretched valuation & muted Q1FY18 earnings and ongoing NK-US geo-political tensions may be some of the primary reasons for lack of follow-up buying & firm conviction and thus market is hovering within a defined range (9650/9700-10150/10200) for the last few months.

Meanwhile, India’s CPI for Aug just flashed as 3.36% against estimate of 3.20%; prior: 2.36%; may be little disappointing for the market sentiment as inflation hawk Patel/RBI now may not be obliged for a Oct rate cut definitely. Core inflation came as 4.5% for Aug against 3.9% recorded for July may be also on the higher side, being sticky in nature as par earlier comments of Patel (RBI Guv) and thus an Oct rate cut hope may be further diminished.

IIP for July flashed as 1.2% as expected against -0.1% for June; improved significantly after Pre-GST disruptions as par earlier Mfg PMI data; thus GDP may also see some surge in the days ahead and a combination of higher growth & higher inflation may not be favourable for another imminent RBI rate cut; it may be a new normal for the Indian economy after DeMo & GST (GDP around 5.5-6% & CPI around 3.5-4%).

Today Nifty was supported by ITC, Tata Motors, IOC, HDFC, HDFC Bk, HUL, RIL, TCS, BPCL & LT (collective contribution by around +55 points).

Today, Nifty was dragged by Indusind Bk, Wipro, Hero Motor, IBULLS HSG & ONGC (collective contribution by -10 points).

BPCL & GAIL were up by around 4% on favourable LNG price renegotiation; additionally BPCL was awarded “Maharatna” (special privilege PSU) status by the Govt.

Tata Motors was up by over 3.5% on upbeat global sales (+9%), optimistic outlook of JLR, new domestic model launch, management effort of cost cutting and resolve of a small labour problem in its Jamshedpur plant.

Tata steel was up by around 3% on resolve of its British pension scheme (BSPS) woes coupled with buzz of an imminent JV with a German steel major (ThyssenKrupp-TKR). This BSPS was a huge liability for Tata Steel-UK (TSU) of around 15 bln Pound.

As par arrangement, the British Pension Regulator has approved a regulated apportionment arrangement (RAA) under which TSU has made a payment of 550 mln Pound to BSPS and shares of TSU, equivalent to 33% stake has issued to the BSPS trustee, thus separating this legacy issues of BSPS from TSU; it has now agreed to sponsor a new pension scheme for its UK business subject to meeting certain qualifying conditions.

This BSPS was a major issue for TSU to form a JV with TKR and thus if everything is fine, the JV could be announced soon, which is also good for the overall EU steel consolidation process. But the overall process may be also EPS dilutive for Tata Steel as TSU has issued significant number of new shares to the BSPS to get out of the huge liability.

Notably, all the Tata group of cos are quite upbeat for the last few trading sessions because of stake consolidation drive by Tata Sons.

Sun Pharma was surged by over 3.50% on reports of US FDA approval of an anti-cholesterol drug coupled with Teva optimism.

ITC was in limelight on reports of venturing in new lines of non-cigarette business like healthcare/hospitals, branded vegetables, physical infrastructure, manufacturing capabilities and digital tech for an expected capex of around Rs.25000 cr. SBI was also in focus for its Life insurance division IPO (SBI Life).

India’s inflation trajectory is going higher again as favourable base effects wanes:

Price stability is virtually non-existent in India, being a legacy problem on account of huge devaluation of INR since independence (1947), when it was around at par (1.00) with USD & around 8 in 1980; now around 65 in 2017. Also, high regulatory taxes and poor infrastructure across the country may be another reason for abnormal price instability, which is affecting real wage growth and consumer spending of the economy.

Another factor, which is affecting India’s growth, may be adverse effect of DeMo & war against black money. DeMo & GST are basically designed to force the informal cash economy (unaccounted) to come into the formal (accounted) economy; this transformation may take significant time and a small informal business may also find it very tough to continue its operations by paying the full compliance costs of his business. Thus, overall employment & growth may be also affecting after DeMo.

As par some estimates, almost 20-30% of India’s high value consumption may be dependent on black/unaccounted money and Govt’s ongoing war against such black money(DeMo) may be affecting Indian consumption story and also private investments, which in turn also affecting the GDP growth of the country.

Although Govt may be absolutely right in its war against black money, the procedure of DeMo may be quite controversial, but at the end of the day, every “shock therapy” has some “costs” also.

Technically, consecutive closing above 10095 area, Nifty Fut may scale 10160 and even 10205 area by 14-15^th Sep, when NAMO will inaugurate India’s dream project of “Bullet Train” with Abe (JP).

Globally, almost all the major Asia-Pacific markets today extended their gains tracking positive global cues on Irma & NK relief. As Irma did not hit the US cities of Florida & Miami directly, estimated damage may be now around $50 bln against earlier projection of $200-300 bln. Although overall damage from Harvey & Irma is huge, it’s still manageable for the US economy and not catastrophic scenario for US, but may be enough for the Fed to have some excuses to stay neutral in Dec’17.

Also, yesterday’s US sponsored UN sanctions on NK may also be termed as symbolic as it diluted significantly to accommodate China & Russia’s concern by removing an all out oil embargo and freeze of NK’s important foreign assets, such as Air Koryo (national airlines of NK) & Kim’s personal financial assets out of NK.

The lighter UN/US sanction now includes a cap on crude & refined products shipments to NK (2mpd/year), complete ban on LNG import and NK’s export of its textile products. Notably, yesterday NK has issued a “dire warning” to US just before the UN sanction that “US will face the greatest pain & suffering it has ever gone through in its entire history if the sanctions came to pass”.

US response was also measured as its UN ambassador commented that “US is not looking for war with NK as it had not yet passed the point of no return”.

Thus, market is on risk-on mode in this “great game of chickens” & “war of words” between NK & US and Trump is also happy to let this game going as NK geo-political tension is now a great instrument to keep USD lower in times of needs in order to make “America great again”.

A weak USD may be now good for US economy (export & imported inflation) and also for the corporate earnings & the stock market. USDJPY is now trading around 109.40, almost unchanged after making an overnight high of 109.58 on less damaging Irma & “muted” celebration by Kim.

Overnight US market closed above 1% on an average on strength of insurers, financials, and tourism & power sector in a relief rally after plunge on fears of Irma (short covering & some bargain hunting). Also, Apple helped the market before launching of its new i-Phone model coupled with Teva (new CEO) & Tesla on optimism about e-car & a free software update for extending the battery life for some of its cars in the Irma/Harvey affected areas.

DJ-30 has gained around 1.19%, while S&P-500 closed around 2488, up by almost 1.08% to end at record high and NASDAQ was in green by almost 1.13%.

US stock future (SPX-500) is now trading around 2485, almost flat (-0.07%) ahead of EU market opening. Looking ahead, USD/US stock market may be driven by Trump’s tax reform talk, US CPI & Fed stance on 20^th Sep apart from geo-political issues. Technically, SPX-500 now need to sustain over 2495-2505 area for further rally; otherwise it may again came down.

Elsewhere, Australia (ASX-200) closed around 5746, up by almost 0.60% on strength of Banks & financials, metals & mining and basis materials (Irma relief). But a higher AUDUSD at 0.8037 (+0.18%) may have also capped some gains today coupled with pressure on gold miners (fall in gold after USD risk-on trade). Despite subdued AU economic data today (NAB business confidence), AUDUSD is higher today for commodity optimism as rebuilding effort in Harvey & Irma affected areas will gain traction.

Japan (Nikkei-225) closed around 19777, up by almost 1.18% on weaker Yen, positive for export heavy JP economy & the market. Today JP market was supported by exporters, automakers, banks & financials, energies & steel makers. But some tech & internet stocks has also dragged the market to some extent today.

Although most Asian markets (MSCI-Ex-JP) and global shares (MSCI-World) consisting of 47 markets are now hovering around record high, JP is market is far from its record high of around 20955 mapped in 2015 because of strong Yen; it was appreciated by almost 20% from 126 level in USDJPY at 2015 to 100 in 2016, which has affected JP GDP & corporate earnings growth significantly.

China (SSE) is closed around 3379, almost flat (+0.09%) as gains from exporters, financials & energies were neutralized by loss in insurance & property stocks.

Today PBOC fixed mid-point of USDCNY higher at 6.5277 vs 6.4997 yesterday with no OMO (neutral drain); USDCNH was hovering above 6.54 mark today. A weaker Yuan is good for China export after PBOC allowed the currency to depreciate after months of appreciation to stem the USD outflow. As par China Prez Xi, China will be not indulged in competitive devaluation of its currency. A higher Yuan may be also one the reasons behind recent USD weakness as PBOC controls a sizeable part of USTSY as FX assets.

Hong-Kong (HKG-33) is now trading around 27945, marginally in red (-0.10%) today, bucking the regional & global trend on pressure on financials & property stocks for lack of any fresh drivers after recent rally as overall valuations may be quite stretched also. All eyes may be now on Apple’s launch of new i-Phone-8 today as a successful launch may trigger demands from the regional components suppliers in turn.

Meanwhile, Crude Oil (WTI) is now trading around 47.85, down by almost 0.50% on concern of overall demand from US consumers from the hurricane affected areas despite optimism over start of refining operations.

EU Market Is Trading Upbeat Amid Drops In EUR & Supported By Banks:

Elsewhere, EU market has extended its NK & Irma relief rally and up by around 0.60% in Stoxx-50 boosted mainly by banks, insurers and some drops in EUR, positive for export heavy EU index. Banks are upbeat for rising bond yields, favourable for their higher lending rate & NIM/EBITDA. Also, some techs/chip makers are helping the EU market today ahead of new i-Phone models launch by Apple today.

DAX-30 & CAC-40 is up by around 0.50% & 0.65%; but FTSE-100 is down by almost 0.20% on higher GBPUSD after a deluge of upbeat UK economic data today ahead of BOE on Thursday. UK homebuilders are also under pressure today after some reports of chronic housing shortage coupled with reluctance of banks to lend to small home builders.

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