Nifty May Open Oct Series In Positive Tone Tracking Upbeat Global Cues On US Tax Reform Optimism; Indian Market May Focus On “War Of Words” Between FM & Former FM Over Trajectory Of Economy & Fund Outflow Concern

Market Mantra: 29/09/2017 (09:00)

SGX-NF: 9810 (+25)

For the Day: 

Key support for NF: 9780/9750-9695

Key resistance for NF: 9825-9865/9925

Key support for BNF: 23900-23700

Key resistance for BNF: 24100-24300

Hints for positional trading:

Technicals indicate that, NF has to sustain over 9865 area for further rally towards 9925-9975 & 10010-10050 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9845 area, NF may fall towards 9800-9780/9750 & 9695 -9645 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24100 area for further rally towards 24300-24550 & 24750-24850 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23850 area, BNF may fall towards 23700-23600 & 23450-23250 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Oct) may open around 9810, up by almost 25 points tracking positive global cues on Trump tax reform optimism after US TSY Sec yesterday signalled that they will “try” to pass the bill with “retroactive effect” from Jan’17. Lack of retrospective effect in the original tax proposal might be an element of disappointment for the market initially, but this clarification along with some other details like tax cut deficit funding may have boosted the US stock sentiment to some extent.

Still, market may not be convinced too much as all these proposals including the Tax reform bill itself is subject to whims & fancy of US legislation and Trump’s ability to pass it; otherwise it may be another instance of legislative squabbling like Trumpcare. 

Although, Trump was able to extend US debt limit on DNC support amid an environment of dual hurricane related humanitarian relief sentiment, going forward he may be able to garner such bipartisan support for not only hostile DNC, but also for some of his own RNC members. Thus, Trump is now trying to shape the tax reform bill as a political agenda and engaging himself with political campaign to garner support for this tax cut plan from the electorate like a matured politician.

Overall, the present form of Trump’s tax reform may be good for small US corporates, but may not be so much different for the US middle class and thus may not help the discretionary consumer spending in a great way.

Overnight US market closed in positive after making another record high on US tax optimism; especially for the small cap shares (Russel-2000). US market was helped by materials/utilities & techs to some extent yesterday, while dragged by banks & financials as US bond yields came down after a good 7YTSY bond auction. Also, bond & currency market (USD) may be concerned about not only Trump’s legislative ability to implement the tax reform proposal under present shape but may be also concerned about credibility of Fed’s dot-plots projection itself.

DJ-30 was up by 0.20% on support of McDonald on analyst upgrade while S&P-500 closed almost flat at 2510 (+0.10%) and NQ-100 was almost unchanged. US stock future (SPX-500) is now trading around 2509, almost unchanged on muted Asian cues ahead of EU market opening.

Back to home, Indian market (Nifty Fut) is now trading around 9845, up by almost 0.58% after starting the Oct series in an upbeat note following 7 days of losing streaks on concern of slowing economy, dilemma of fiscal stimulus & fiscal slippages, a hawkish Fed, strong USDINR and ongoing FIIs fund outflows. A combination of higher USD, higher US bond yields and an “attractive” US corporate tax system may be not good for the EM including India as FIIs fund outflow may accelerate in the days ahead.

Market may also focus on the current spate of “war of words” between FM & the former FM (columnist) for disease & prescription of slowing Indian economy. 

It may be now increasingly clear that Govt is in no mood for tolerance even for constructive criticism of its policies and this may not be a good signal for the investors, who rely only on the hard facts & figures, which tells that between March’15 to March’17, Nifty EPS was around 374-370-395 and currently it stands around 384 (Q2FY18); thus where are the earnings growth? 

Despite all the so called green shoots in the economy under NDA, Nifty EPS is not able to break the 400 barrier in the last three years and thus the problem may be structural & it needs some structural resolution rather than rhetorical or political.

SGX-NF