Market Wrap: 04/09/2017 (17:00)

NSE-NF (Sep):9919 (-88; -0.88%) (TTM PE: 25.29; Nr. 2 SD of 25; Avg PE: 20; TTM/FY-17 EPS: 392; NS: 9913)

NSE-BNF (Sep):24274 (-210; -0.86%) (TTM PE: 30.49; Abv 3 SD of 30; Avg PE: 20 TTM/FY-17 EPS: 795; BNS: 24237)

For 05/09/2017:

Key support for NF: 9870-9820

Key resistance for NF: 9940-9980

Key support for BNF: 24200-24000

Key resistance for BNF: 24400-24575

Hints for positional trading:

Time & Price action suggests that, NF has to sustain over 9980 area for further rally towards 10030/50-10090 & 10160-10205 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9960 area, NF may fall towards 9910-9870 & 9820-9870 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24400 area for further rally towards 24525/24575-24675 & 24775-24875 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24350 area, BNF may fall towards 24200-24000 & 23850-23700 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Sep) today closed around 9919, plunged by almost 88 points (-0.88%) after making an opening high of 10009 and mid-session low of 9887. Indian market today opened slightly edged up by around 6 points tracking subdued global cues amid renewed NK saber-rattling, but plummeted soon after weak EU market opening on renewed fear of another imminent ICBM test by NK.

USD further plummeted by some comments from SK’s defence minister that NK nuke tests yesterday had an explosive capacity of 50 kt against earlier assumption of 10 kt. SK defence mister has also warned that NK may be preparing for another imminent ICBM launch. Thus risk aversion trade may get further boost.

But, Indian market recovered to some extent in the last couple of hours of trade, tracking similar recovery in EU/global market, thus narrowing deep loses today. Govt on its part has also tried to help the market sentiment by signaling more incremental reforms through strategic sales of 9 PSUS with a significant holding by LIC (30%) and also indicated that for the time being they are not increasing any GST cess on luxury cars/SUVS amid good GST collection, which may have also helped some short covering today.

Indian market may have focused on cabinet rejig on yesterday by the Govt/BJP, keeping an eye on the 2018-19 state & general elections and also to counter growing skepticism about Modinomics, as GDP has plummeted to 3 yrs low, almost down by around 1.5% over last GDP growth recorded under UPA’s era of so called policy paralysis.

Although, defence & railway stocks may get some boost after the favourable cabinet reshuffle, overall market sentiment may be subdued as FM portfolio was is kept unchanged by NAMO; market sentiment got some boost on Friday after buzz that Goyal may be appointed as FM.

But, Govt/NAMO may have taken a right decision by not rejig the FM post as AJ is the senior most minister of team NAMO and may also be termed as an “unofficial” Dy-PM of the present Govt, being face & spokesperson of the same and also a practical man, managing all sorts of political crisis, be it DeMo or GST disruptions. AJ is also a favourite of the FPIS & his removal as FM may send a wrong signal to the investors/market.

Although, Nifty has opened almost flat today, but it’s well off the SGX Nifty high of 10048 mapped on weekend Friday evening session after US NFP payroll and optimism about Indian cabinet reshuffle coupled with blockbuster auto sales, recovery in Mfg PMI and hopes of an Oct rate cut by RBI.

Although, Aug auto sales were blockbuster, it may be also transient and came on the back of slump in sales in July for GST disruptions; Aug sales may be also boosted by favourable GST effect, festival demand & from 7-CPC arrears (Govt employees & army personnel) and thus may not be repeated in the months ahead.

Apart from geo-political tensions, stretched valuations, muted Q1FY18 earnings & Govt’s war on black money may continue haunt the Indian market sentiment in the days ahead despite incremental policy reforms by the Govt. 10150-10200 may be an intermediate top of the market already formed; 9700-9650 may be the 1^st positional support as of now.

Nifty was today supported by Sun Pharma (US business optimism), Bosch, RIL (approaching bonus book closing day coupled with favourable IUC charges recommendation by IMG & supply of gasoline to Harvey hit US ), Indiabulls Hsg Finance, Coal India (better production figure) & VEDL (analysts optimism). Together this cos has contributed almost 10 points in Nifty.

On the other side, Nifty was dragged by IOC, Infy (renewed war of words among the founder-NRN with ex-board/Chairman & buzz of heavy participation by promoter group in the buy back), HDFC Bk, Adani Ports, Tata Motors (resignation of EU CTO), HUL, Kotak Bk, Indusind Bk, LT & Axis Bk (total around 50 points).

Overall, all the sectors barring metals & media were closed in deep red (Bank, Auto, FMCG & IT). Metals were supportive today on buzz of tighter supplies in China; broader market advance/decline ration was 1:2. Some Pharma counters (Lupin, Cadila) bucked the trend today on US FDA product approval.

Media stocks were in limelight today after Star India bagged the global media rights of the IPL for five years (2018-23) by a whooping amount of over Rs.16000 cr.

Globally, almost all the major Asia-Pacific markets barring China were stressed today tracking subdued global cues after NK test a powerful H-bomb on the weekend (Sunday) and subsequent risk aversion.

As we all know, on Sunday NK tested an unprecedented powerful H-bomb (?) much above the expectations of nuke analysts & experts. Although, response from Trump & US authorities are extremely measured so far, market may be concerned over another nuke capable ICBM test over JP airspace towards US pacific military base Guam on 9^th Sep, the foundation day of NK. The rouged nation is also under some suspect for testing an unreported controlled fusion device explosion on its liberation day in the last week of Aug.

Risk aversion sentiment got some further boost today in the early Asian morning after SK tested a ballistic missile stimulated to hit the NK nuclear site. Although, there is no such probability of a war between NK & US-SK simply because of nuke insurance of NK and the perception that even if US attack NK with conventional weapons, the later could hit SK in a matter of minutes, killing millions of civilians.

The NK geo-political issues are getting more complex after Trump threatened China for trading relationship with NK. Trump may be also planning to scrap trading relationship with SK over trade related issues and also getting involved with diplomatic & sanction row with Russia.

But, overall in a sense, this NK geo-political issues may be a boon for US economy as Kim is helping Trump to lower the USD and US is also able to sell more of its military hardware to SK & JP; it may be positive for reflation trade also, as both JP & SK is boosting their defence budget to “counter” NK and is acting some sort of fiscal stimulus for both US & JP-SK!! Now, defence spending may be the main agenda of Trump on lack of poor visibility of other aspects of Trumponomics.

Thus, market may be cool as long as the NK tensions are limited within “war games & war of words” and not any types of “real war”. Trump described the latest NK nuke test as “hostile & dangerous” and in response for a possible US military action on NK, he commented that “we’ll see”.

Overnight US market (Friday weekend) closed almost flat after a terrible NFP report; although the overall US NFP numbers were shocking, USD recovered to some extent after plunging initially on the perception that the Aug job numbers are always bogged down by seasonal factors and it may be revised upwards in next review on Oct reading.

USD got further boost after a ECB trail balloon that it’s not yet prepared to discuss any QE tapering strategy until Dec’17; thus it may be clear now that ECB is not comfortable to let EUR go above 1.20. Thus now all the eyes will be on ECB statement & Draghi’s presser on 7^th Sep.

DJ-30 was up by around 0.20%, while S&P gained by almost 0.20% at 2477 and NASDAQ closed at 0.10% higher on weak NFP as it may force Fed to be on hold in Dec’17; a lower USD may be good for US economy, corporate earnings and thus may be also good for US stock market, being goldilocks type of scenario. US market was also dragged by energies for Harvey related oil shocks & refineries shut down.

US stock future (SPX-500) is now trading around 2465, down by almost 0.32% on risk aversion & flows to the safety of Yen, CHF, Gold, BTC, Bonds and even EUR; technically now 2455-2440 maybe the immediate support zone after NK nuked the market.

Elsewhere, Australia (ASX-200) closed around 5702, down by almost 0.39% on NK saber-rattling and also being dragged by the financials most led by CBA and further followed by utilities, healthcare & IT stocks; but gold miners has helped the AU market today by some extent as Gold soared to almost 1340 amid NK risk aversion; other miners were mixed today.

AUDUSD is now trading around 0.7952, down by almost 0.15% amid subdued AU economic data and concern of “dovish hold” by RBA & talk down effort by RBA Gov (Lowe) tomorrow. Commodity currencies (AUD’/NZD/CAD) were down today also for NK risk aversion & flight to safe heaven currencies.

Japan (Nikkei-225) also closed around 19508, down by almost 0.93% in a volatile day of trading tracking similar movements in USDJPY, under renewed pressure from NK ICBM concern and some hawkish comments from ex-BOJ member.

Today, soon after EU session opens, USD got further jolt from former BOJ member (Kiuchi), commenting that BOJ is already retreating from its radical monetary policy and may be continue to do so; JGB bond buying at current pace likely to reach limit around mid-2018 due to scarcity and thus BOJ may change its strategy to target 5YJGB yields rather than 10YJGB in its goal of policy normalization.

Kiuchi further suggested that BOJ may abandon YCC, ramp up JGB buying to finance fiscal spending of the JP economy, which is suffering severe downturn. Thus, all these comments may be an indirect signal for BOJ tapering in line with global bandwagon for QT by Fed & ECB. USDJPY is now trading around 109.50, down by almost 0.67% and may be again eyeing the 108.40-1018.10 support zone.

China (SSE) is the only major Asian market is in green today amid BRICS meet and is closed around 3380, up by almost 0.35% defying the NK tensions over China economy optimism and a stronger Yuan policy by PBOC, which may not be helpful for China’s export, but favourable for China stock market on greater fund inflow; cross border HKG connect has seen record fund inflow for the China stocks by around $4.12 bln so far.

China market is today supported by financials & banks on tighter PBOC, which may be helpful for their NIM and also by metals on concern of tighter supplies amid growing pollution curbs & furnace fires.

PBOC today fixed USDCNY at 6.5668 vs 6.5909 yesterday and drained 140 bln Yuan net by not conducting any OMO today. As par some former PBOC adviser, China should make Yuan a free float currency ASAP.

Hong-Kong (KKG-33) is now trading around 27770, down by almost 0.70% on NK’s nuke power, being more vulnerable to global risk aversion, unlike China market as of now. So far, HK market has appreciated by over 30% YTD led by decent earnings & optimism over banks, real estate & IT and thus present correction on NK issues may be an excuse as market may be also concerned for stretched valuations.

South Korean market (Kospi) closed by around 1% lower on NK nuke tensions & fresh concern over another imminent ICBM test; IT/electronics & automakers are dragging the SK market most today.

Overall, as long as NK-US “game of chickens” is limited within rhetoric, the current volatility may be an opportunity for an investor, looking for quality scrips.

Elsewhere, EU stocks drop by around 0.40% in Stoxx-50 on fresh NK nuke provocation, reports of another imminent ICBM launch & subsequent risk aversion & higher EUR; market may be concerned over another nuke capable ICBM test over JP airspace towards US pacific military base Guam on 9^th Sep, the foundation day of NK. There was also some SK intelligence report that NK is digging another tunnel and may also test another nuke shortly.

EU market is being helped to some extent by Gold miners as gold soared over Korean tensions & mixed basic materials amid buzz of tighter supplies of metals in China; but being dragged by some automakers heavily after Fiat said that there is no concrete M&A offer on the table.

DAX-30 is down by around 0.20% and CAC-40 is dragged by almost 0.25%; but FTSE-100 is down by around 0.50% on selling in some Asia focused banks.

Overall, tomorrow may be a vital day for the market as US traders will return to their trading desks after an extended weekend, thanks to Labour Day today.