Market Wrap: 20/09/2017 (17:00)

NSE-NF (Sep):10169 (+0.15; +0.00%)

(TTM PE: 26.41; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10141; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):25010 (-50; -0.20%)

(TTM PE: 28.15; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24965; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 21/09/2017:

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 10150/10130-10090 & 10050-10010/9970 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 & 24650-24500 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 10169, almost unchanged (+0.15) after a range bound day of trading in which it made a mid- session low of 10155 and late day high of 10182 ahead of Fed dilemma & lack of any meaningful domestic cues coupled with heavy rains in Mumbai, which may have also affected the market volume.

Indian market today also opened almost flat tracking muted global cues and attempted some late recovery on FM’s presser & expectation of some fiscal stimulus talks, but nothing was there except some ownership transfers of ITDC hotels to different state Govts and a festival bonus for Indian railway employees based on performance. Thus market drops again in the closing minutes coupled with some sharp EU market reaction for a London bomb suspect.

Indian market today also opened almost flat tracking muted global cues and attempted some late recovery on FM’s presser & expectation of some fiscal stimulus talks, but nothing was there except some ownership transfers of ITDC hotels to different state Govts and a festival bonus for Indian railway employees based on performance. Thus market dropped again in the closing minutes coupled with some sharp EU market reaction for a London bomb suspect.

Although, Govt is very much concerned about slowing growth, FM signalled that some steps to revive growth may be announced soon after getting PM’s nod; FM today also acknowledged that Govt need fund for public infra investment and Indian GDP is dependent on Govt spending push (capex). But he has expressed his reservation about any Petro Product tax reform as this revenue is essential for the Govt capex (road development) and an easy way of revenue generation.

Clearly, Govt is now pushing for disinvestments (deleveraging) and is going all out to sell the unviable PSU cos, especially in the unrelated fields.

Nifty was today supported by ITC, RIL, HDFC, L&T, DRL, SBI, Tata Steel, Yes Bank, Adani Ports & ONGC; together these top ten cos has contributed around +23 points.

Nifty was dragged by ICICI Bank, IOC, Tata Motors, HUL, Hero Motor, BPCL, Kotak Bank, Indusind Bank, Sun Pharma & Bharti Infratel; collectively these top ten laggards has contributed almost -26 points in the index.

Overall, private banks & auto stocks were under pressure; while PSBS and some index heavy weights (RIL/ITC/Tata Steel) has supported the market today.

DRL was in the lime light after some procedural observation by US FDA yesterday coupled with optimistic outlook by analysts; it gained by around 4%.

Tata Steel gained by around 1.65% on formal announcement of JV (50:50) with the German Co (ThyssenKrupp), may be slightly in favour of Tata Steel; but this news was also largely discounted by the market.

RIL gained by around 1%, but well off the day high after TRAI slashed IUC, which is favourable for the co; but it’s unfavorable for other telecom incumbents such as Idea/Vodafone & Bharti Airtel. However, Airtel was closed in positive after early slump as the overall impact may be quite limited and the co is also foraying into LYF telecom/data space as R-Jio. In the coming days, we may see only 2-3 major telecom cos in India (R-Jio/Airtel & Vodafone).

BOB gained by around 3% on a large block deal, which also caused some optimism about the whole PSBS space & SBI. ITC jumped by almost 1.50% on renewed optimism about its diversification & expansion plan in hotels, hospitals/healthcare, branded vegetables. ITC may be aiming to generate at least 50% revenue from its non-cigarette business in the days ahead on increasing regulatory & health concern.

ONGC was up by above 1% on fresh oil & gas discovery in the Mumbai Arabian sea; also a WTI above $50 is positive for it.

BPCL, HPCL, IOC (oil marketing cos) dropped after a Moody’s report that their operational cash-flow is insufficient to meet their increasing capex & high dividends payments and thus the shortfall has to be funded by borrowings; thus overall credit metrics may remain weak although it may improve in the short term on higher sales & operating margin coupled with lower dividend pay outs.

Indian Market May Have Focused Today On Telecom And Govt’s Fiscal Stimulus Talks & Blockage Of Huge Input Tax Credit For GST, Hampering Business Activity:

Market may have focused today on telecom after controversial IUC reduction which is highly favourable to R-Jio; but this issue may ultimately be settled by SC and may also be negative for Govt revenue from telecom sector apart from risks of another huge telecom NPA for the banks.

Market may have also focused on Govt’s talks of fiscal stimulus to revive the slowing Indian economy and huge amount of GST input tax credit claims of around Rs.65000 cr stuck with the Govt; business & export may be suffering significantly for this blockage of working capital.

Globally, Asia-Pacific stocks markets were mixed today, tracking muted global/Asian cues on concern of a dovish Fed coupled with Trump’s rhetoric to annihilate the “rocket man Kim” & NK completely if America or any of its allies is attacked by the hermit state.

But on more serious note, US defence sec yesterday has signalled that US may shoot down any further missile launched by NK even if it’s not directed towards US or Guam. All eyes now may be on any weekend response of Kim after Trump’s veiled threat and as par some reports, NK may be in the final stages of nuke enabled ICBM development and in that scenario, they may require more such tests in the coming days.

Today all eyes may be on the economics rather than politics; a Fed BS tapering may be already discounted by the market, but actual tapering details (quantity & duration) may now matter most. In all probability, Fed may maintain its previous dot-plots of a Dec’17 rate hike in order to maintain its credibility, everything being equal. But, Yellen’s presser (Q&A) may be most important today to gauze Fed’s perception of a Dec rate hike.

FFR is now indicating around 55% probability of a Dec move by Fed; i.e. equivalent to neutral or no rate hike; a dovish Fed may be negative for USD, which in turn may not be good for the export heavy Asian & EU markets. Although, India being a import oriented economy, it may benefit from a lower USD but as Nifty earnings is heavily dependent on export by almost 60%, a lower USD may be also not good for the Indian market.

Overnight, US market closed at another record high as “usual”; DJ-30 gained by around 0.20%, while S&P-500 closed almost flat at 2507 (+0.11%) and NASDAQ was almost unchanged (+0.10%). US market was helped by banks & financials yesterday on higher US bond yields, which is favourable for their business models. Also, telecoms have helped DJ yesterday on merger news between T-Mobile & Sprint.

USD/US bond yields got some boost yesterday on talks of an imminent US tax reform plan and a Reuter’s economist survey, which is indicating that almost 76% is expecting a Dec’17 rate hike by Fed and more importantly, 45% of the economists said they see little connection between unemployment & inflation because of changing scenario of automation, globalization etc (structural issue, which may not be resolved by a loose monetary policy by the central banks).

USD retraced in the late NY session yesterday after Ryan (US speaker) signalled that there is little hope for passage of healthcare bill by Sep’17.

Elsewhere, Australia (ASX-200) closed in red around 5709, down marginally by 0.10% and was dragged by banks & financials, telecoms, energies, exporters and basic materials/resources. AUDUSD is today in green by around +0.50%; at 0.8045 on NZ election regional optimism ahead of Fed today; it was also supported by some extent after RBA Asst Gov sounds less dovish than expected.

Japan (Nikkei-225) closed almost unchanged around 20310 (+0.05%) on lacklustre movement by USDJPY, which is now trading around 111.50 down by almost 0.15% and off the NY session high of around 111.88 mapped after renewed optimism about a hawkish script from Yellen today coupled with some hopes of an imminent US tax reform draft plans.

Today JP PM Abe has also indicated delayed fiscal discipline path beyond 2020 (budget balance) as he may approve some fiscal stimulus for the JP economy on education, innovation on HR & productivity; a JP fiscal stimulus may be positive for Yen. All eyes may be now on Kuroda/BOJ tomorrow to have a glimpse of their thinking about normalization of BOJ extraordinary monetary policy after Fed’s BS tapering plan tonight.

JP exporters were mixed, while automakers, financials were in pressure and energies has helped the Nikkei today. On economic data front, both JP export and import surged for Aug at 18.1% & 15.2%; much better than expected with a healthy trade balance (positive for Yen).

China (SSE) was closed around 3366, up by almost 0.30% on optimism among business leaders about China’s economic strength & stability and hopes that Govt may not tolerate unhealthy volatility in the country’s financial market ahead of the party congress next month.

As par China Prez Xi, stability for the China stock market is of utmost importance as any epic crash may also invite social instability. Thus market is confident that Govt will give support to the market at any cost. Large corporates are also very optimistic after recent deleveraging drive by the Govt (ongoing capacity cuts & production curbs on stronger environmental pollution concerns) as it may benefit larger cos in the impacted industries such as steel/metals.

Today China market was supported by materials & consumer stocks on optimism about better consumer demand in the upcoming Golden holiday week from 1^st Oct. Also, e-car manufacturers & suppliers were upbeat today as China may ban petro cars after 2029-30; but real estate shares were under pressure today after PBOC backed mortgage rate hikes.

PBOC today fixed mid-point of USDCNY higher at 6.5670 vs 6.5530 yesterday with NIL net injection/drain (neutral). PBOC is expected to let Yuan to have “normal volatility on both sides of trade without much intervention.

Hong-Kong (HKG-33) Fut is now trading around 28115, up by almost 0.20% on optimism about Chinese e-car makers and China Unicom, a telecom co on better business prospect and analysts’ upgrade; but property developers are weak on concern of steep valuation and increase in China mortgage rates.

Meanwhile, Crude Oil (WTI) Fut was trading around 50.25, up by almost 0.80% on Iraq jawboning about OPEC production cut extension with a deeper cut to combat growing global production cut; it’s also being helped by a larger than expected crude draw down report from API earlier today ahead of official EIA/DOE report later in the NY session today.

Technically, WTI now need to sustain over 50.50 zone for further rally; otherwise expect some correction below 49.60 area.

EU market was also flat on concern of a dovish Fed today as a weak USD may not be good for the export heavy EU market:

Elsewhere, EU market is almost flat in STOXX-600 (-0.08%) ahead of Fed today on concern of a dovish Yellen; a weak USD may not be good for the export heavy EU market; it is also being dragged by financials & tech shares, while telecom & utilities are supporting a bit. German steel major ThyssenKrupp is also supporting the market sentiment today on JV news with India’s Tata Steel.

DAX-30 & CAC-40 is almost flat at around -0.05, while FTSE-100 has gained by almost 0.32% despite another surge in GBPUSD after blockbuster UK retail sales today.

UK market is being helped by retail home improvement/super market shares on upbeat retail sales report today; also consumer services, energies & financials are supporting while consumer goods (CG) & health care stocks are dragging the UK market today. British consumers are now over leveraged as house hold debt may be growing by five times more than the earnings growth.