Market Wrap: 11/09/2017 (17:00)

NSE-NF (Sep):10024 (+74; -0.74%)

(TTM PE: 26.06; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10006; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24651 (+277; +1.14%)

(TTM PE: 27.82; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24672; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 12/09/2017:

Key support for NF: 9980-9940

Key resistance for NF: 10050-10090

Key support for BNF: 24500-24300

Key resistance for BNF: 24775-24875

Hints for positional trading:

Time & Price action suggests that, NF has to sustain over 10050 area for further rally towards 10090-10160 & 10205-10250 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10030 area, NF may fall towards 9980-9940 & 9905-9840 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24775 area for further rally towards 24875-25050 & 25150-25250 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24725 area, BNF may fall towards 24600-24500 & 24300-24125 area in the near term (under bear case scenario).

Indian market (Nifty Fut) today closed around 10024, surged by almost 74 points (+0.74%) after making an opening minutes low of 9985 and closing session high of 10049; primarily boosted by positive global cues after NK’s inaction on the weekend in its celebration day coupled with less intensified Irma hurricane in US and PBOC easing of RR requirement for Yuan trading.

Also domestic optimism about M&A of Bharat Financial, an MFI with Indusind Bank, one of the leading new generation private banks in India may have also boosted the sentiment today coupled with less than expected GST cess hikes on mid/big size cars and an upbeat auto sales figure from SIAM for the month of Aug, indicating around 14% growth in PV sales after the GST disruptions in July.

Indian market today opened almost 49 points gap up tracking upbeat global cues and soon touched the Mt’ Everest of 10k amid brisk short covering & value buying; it got further boost from solid opening of EU market (DAX-30) on NK risk-appetite and fall in EUR, positive for EU export heavy index.

There was also some reports that Govt may soon launch a comprehensive income tax reform policy aiming at simple & attractive regulations to encourage more Indians to come voluntarily into the income tax net to improve the historically poor GDP/TAX ratio and that may have also boosted the Indian market sentiment today.

Also, news that Indian Govt may soon tweak its FDI policy in the airlines sector to allow foreign airlines to pick up 49% stake, keeping in view of Air India stake sale may have boosted the morale of the market today; Govt may keep the rest 51% controlling stake for Air India.

Looking ahead, Indian market may focus on domestic issues like stretched valuations, NPA resolution, ongoing Govt’s war on black money, extension of trading hours controversy by SEBI and CPI & IIP report tomorrow. A combination of higher CPI with lower growth may be worrisome for the Indian economy (stagflation).

Overall, market today also faced strong selling pressure from around 10050 level in Nifty Fut, indicating some institutional (FII) selling, who was already shorted heavily in the index future for Sep series on concern of NK related geo-political tensions & stretched valuations.

Nifty was today supported by HDFC Bk, L&T, Indusind Bank, Yes Bank, Maruti, Asian Paints, ITC, Gail, HUL & Tata Power (total contribution by around +73 points).

Nifty was dragged by Infy, TCS, ICICI Bk, M&M, Indiabulls Hsg, Sun Pharma, SBI, Eicher Motors (total contribution by around -13 points).

Broadly speaking, Indian market was today supported by selected private banks, FMCG, energies (Oil & Gas) & Infra while it was dragged by selected automobiles, IT, PSBS.

Indusind Bank (IIB) rallied by almost 5.62% on buzz of favourable merger story with Bharat Fin, which was expected for the last six months or so; but final terms is not yet settled and there may be dilution of IIB for this all stocks M&A deal, if take final shape.

Tata Power rallied by over 4.65% on reports that the promoter Tata Sons Gr may consolidate their holdings in the co along with Tata Chemical.

Gail, Petronet LNG & other related oil stocks has gained on news that Indian Govt has renegotiated the price of LNG imported from AU’s Gorgon project in its favour with Exxon Mobil, which may save more than Rs.10000 cr over the life of the contract.

M&M was down by around 1.17% on unfavorable GST cess on some of its SUV models, which may impact it significantly in the days ahead. On the other side, Maruti was surged by over 2% on favourable GST cess on its small cars model, but mixed additional cess on higher models.

Overall, it seems that Govt is in favour of small cars for less pollution and higher volumes, which may ultimately translate into higher GST collections. But luxury car manufacturers are quite unhappy with this double standard GST treatment by the Govt.

Indian Market May Also Focus On High GST Input Tax Claim Figure:

On the weekend, there were some reports that out of 95k cr GST collections in July, almost 35k cr was made as input tax claims (ITC) by the industry/trade as VAT/ED drawback (paid) amount for the transitional period. Although, Govt is examining the huge ITC claims, it may be negative for the GST collection (fiscal math) amount, if comes true.

Also, frequent GSTN glitches and subsequent delay in return filling & processing may be negative for cash-flow (fiscal health) of the states and also for the central Govt. In addition to that, ongoing squabbling about GST rate tinkering for various products, especially for the automobile sector may not be good for the overall economy & GST mechanism. Significant price hikes due to the new GST cess for mid & large sized cars before Dewali festival season may be a big dampener for the Indian economy & the market looking ahead.

Globally, almost all the major Asia-Pacific markets are now trading in moderate to deep green tracking positive global cues & higher USD after NK’s Kim “surprised” the world/market by celebrating the much awaited NK independence (celebration) day with his core team of nuclear scientists & techs personnel involved in the latest H-bomb test rather than with Nuke/ICBM. Last year on similar occasion, NK had celebrated by a Nuke test.

Global risk-appetite further boosted by some reports that China is imposing some restrictions on NK based banks and NK officials may also start some types of official diplomatic talks with US; there was increasing political pressure on NK leadership to come to the negotiation table and US is also planning for an UN sanction of oil supply cut and freeze of Kim’s personal financial assets outside NK.

Although, such US sanction against NK will be highly objected by China & Russia, especially for the oil supply cut, both China & Russia are doing their best to defuse the Korean tensions by adopting a balancing approach, so that US could not attack NK preemptively. But, there is every possibility that NK may again test a Nuke or an ICBM in the days ahead to demonstrate its defence/attack capability, which is itself is acting as an insurance against any US attack for the last 25 years.

But, US global rating agency Fitch has warned sovereign rating downgrade on SK, if such NK geo-political tensions persist even without a real war; it may hamper trade relations of SK with both China & US. But a real conflict between NK & US-SK for any miscalculation may also be catastrophic not only for the SK & US economy, but may be also for the overall global economy due to its spillover effect.

Global risk sentiment also boosted this morning after Irma hurricane hits US with less than expected intensity and thus the overall damage may be much less than earlier expected; although it may be still huge for the US economy, which may also give Fed another excuse to be on hold in Dec’17.

Also, PBOC (China) regulatory action on the weekend to slash the extra margin/reserve requirements for trading in offshore CNY forward contracts may be positive for the USDCNY & risk-appetite and PBOC is also trying to gradually make Yuan a complete free float currency after it made it stronger for the last few months; USDCNY was today fixed just below 6.50 mark, whereas USDCNH has strengthen above 6.52 in the morning trade today.

Overnight, on Friday weekend, US market closed mixed on forecast of less intensity of Irma coupled with earlier plunge of USD, after Trump tries to dump the US debt limit regulations and dovish Fed speak; market is now almost certain that Fed is not going to hike in Dec’17. USD/US bond yields was also under pressure for US policy & political paralysis, despite some temporary boost of US debt limit extension legislative win by Trump.

DJ-30 was up by 0.06%, while S&P-500 lost 0.15% to 2461 and NASDAQ dragged by almost 0.59%; insurance cos helped the US market on forecast of less damage out of Irma; but it was dragged heavily by Equifax on data breach and some gun makers/retailers.

Also, passage of US debt limit & Harvey relief fund by the US house have boosted the US market sentiment on Friday, although it was on expected line. A lower USD may be also good for the US economy (export & imported inflation), corporate warnings and the US stock market, being goldilocks types of situation.

US stock future (SPX-500) is now trading around 2474, up by almost 0.48% tracking global risk-appetite amid Kim’s inaction over the weekend and less damage from Irma. Looking ahead, SPX-500 has to sustain above 2485-2505 level for further rally; otherwise expect some correction.

Elsewhere, Australia (ASX-200) closed around 5713, up by almost 0.70% on lower AUDUSD amid NK muted celebration on the weekend. AU market was also supported today by big four AU banks & financials as US yields rise to some extent ; it was also helped by energies on higher oil today; but dragged by weakness in mining & metal stocks (lower metal prices in China market today).

Japan (Nikkei-225) closed around 19546, up by almost 1.41% on lower Yen as USDJPY goes higher today to almost 108.50 (+0.60%) from Friday’s Irma panic low of 107.31 on less intensified Irma than expected earlier coupled with lull in NK tensions over the weekend on the perception that “ the dog that did not bark”.

JP market was today supported by export oriented automakers & electronics giants coupled with banks & energies; Nikkei-225 bounced back from the four months low. On the economic front, JP core machinery order for July flashed upbeat at 8% against estimate of 4.4% (prior: -1.9%) on MOM basis; although it’s a low tier economic data, it may have also boosted the overall JP market sentiment today.

China (SSE) closed around 3376, up by almost 0.33% after PBOC scraped reserve/extra margin requirements of around 20% for financial institutions to deal with offshore Yuan FWD contract (USDCNH); this step may pave the way for Yuan depreciation & free float mechanism in the coming days after PBOC made it dearer against USD for the last few months; a weaker Yuan may be good for Chinese exports, which was under pressure to some extent amid PBOC effort of tightening, deleveraging and Yuan appreciation to prevent outflow ahead of Party congress.

Yuan is now being regarded as one of the safe haven currency and may be also a beneficiary of recent risk aversion flow out of NK tensions apart from huge fund inflow for the China stock & bond market. China PPI & CPI data on the weakened was also upbeat, indicating a reflationary sentiment. China market sentiment was also being helped by Govt’s plan to restructure SOES.

Although, PBOC today fixed midpoint of USDCNY at 6.4997 vs 6.5032 on Friday with a net drain of 40 bln Yuan, USDCNH surged above 6.52 on PBOC action of no requirement of YRR. Some economists are also very upbeat over China’s new phase of growth amid improved macro indicators & various China economic data.

Hong-Kong (HKG-33) is trading in deep green around 27960, up by almost 1.10% and basically driving the regional market sentiment on risk-appetite coupled with help from property & airline stocks and soft PBOC approach for Yuan RR. Also, techs, insurers and some China based toy mfg cos (plan of fund raising) are helping the HK market today.

Meanwhile, Crude Oil (WTI) is now trading around 47.75, up by almost 0.50% after making a Irma driven panic low of 47.27 on Friday weekend; today WIT is up for some Saudi jawboning about extension of production cut beyond March’18 coupled with gradual resumption of refinery operations from Harvey hit areas and less intensified Irma hurricane in US.

Technically, WTI has to sustain over 48.35 area for 48.95-49.50 zone now; otherwise sustaining below 47.95-48.15 zone, it may again come down to 47.25-46.45 & 45.50 area in the coming days.

Elsewhere, EU stocks are trading quite upbeat by over 1.25% in Stoxx-50 on NK risk-appetite and less damaging Irma in US for which estimate of damage is now cut to almost $50 bln from previous $200 bln. As a result, insurers are gaining today and coupled with that a weak EUR because of USD risk-on rally has also helped the overall EU market today. Also, Banks, energies, healthcare, property developers has helped while mining and some outsourcing cos dragged the EU market today.

DAX-30 is up by 1.30%, while CAC-40 has gained by almost 1.25% and FTSE-100 is in green by 0.35% on a strong GBPUSD ahead of the crucial UK Parliament Brexit repel vote later today.

All eyes may be now on final outcome of US sponsored UN resolution to sanction against NK’s oil supplies by China & Russia; NK has already issued a dire warning against the US for such sanctions as “US will pay due price for spearheading the illegal & unlawful resolution on harsher sanctions”.

Most probably, China & Russia will veto the US proposal, which also being supported by JP, but in that scenario expect some harsh protectionist tweet for China & Russia from Trump, which may increase the ongoing trade war. But if the US proposal is passed today, NK may reply it with another ICBM launch or even a Nuke test in the coming days.

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