Market Wrap: 27/09/2017 (17:00)

NSE-NF (Sep):9741 (-126; -1.27%)

(TTM PE: 25.35; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 9735; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):23817 (-6; -0.02%) (TTM PE: 26.85; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 23813; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 27/09/2017:

Key support for NF: 9695-9645

Key resistance for NF: 9785-9825

Key support for BNF: 23700-23600

Key resistance for BNF: 23900-24100

Hints for positional trading:

Technicals indicate that, NF has to sustain over 9785 area for further rally towards 9825-9860 & 9910-9950 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9765-9745 area, NF may fall towards 9695-9645 & 9580-9450/9405 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23900 area for further rally towards 24100-24300 & 24550-24750 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).

Indian market (Nifty Fut) today closed around 9741, plunged by almost 126 points (-1.27%) after making an opening minutes high of 9901 and closing session low of 9718 on concern of slowing economy, nature of Govt’s fiscal stimulus package & subsequent worries of fiscal discipline, a strong USD tracking hawkish Fed and Indian FIIs outflow coupled with lingering NK geo-political tensions and today’s “surgical strike” news on Naga militants at Myanmar border.

As valuations are quite high amid muted Q1 earnings due to various factors including Pre-GST disruptions, market may be also concerned about Q2 & H2FY18 earnings trajectory for Post-GST implementation disruptions and a slowing economy. Thus market/FIIs are in selling spree for concern of muted earnings, fiscal slippages, nature of fiscal stimulus & political populism ahead of elections next year and a “surgical strike” at Myanmar may be just an excuse to sell more.

Such “surgical strikes” are a regular phenomenon by the Indian Army/BSF at Myanmar border to counter Naga insurgency and not new and such action or even border tensions with Myanmar is entirely different with Pak/China.

A strong USDINR may be good for India’s exports and may be also good for Nifty earnings as 60% of the same is export heavy, it may not be good for the Indian economy, being primarily an import oriented country. Today INR plunged more on some dovish comments by India’s CEA that a weak INR is good for India’s economy/exports.

A weak INR may be more headwinds for the FIIs as dollar (USD) value of their portfolio plunges more and thus they are also selling fast and the resultant FII outflow pressure is also accelerating the pressure on INR!!

Also a surging Oil/WTI above $52 may be affecting the overall Indian market sentiment due to concern of CAD/Trade deficit and also Govt’s fiscal math. A higher oil may force the Govt to roll back the excise duty components on petro products to contain runaway inflation, thereby affecting an easy way of revenue flow for the exchequer.

As par latest trial balloon, Govt may review the overall economic policies today and take a call on roll out of next phase of economic policies along with any revision of the “Ujwala” (LPG for all) scheme; also CEA (Arvind Subramanian) term may be extended by another year. Govt may also stimulate Indian healthcare system by extending Doctor’s retirement age by 5 years and may also modernize the Indian police/home security system for around Rs.15000 cr. But market is so far unfazed on concern of stretched valuation, muted earnings & falling GDP.

Today, Nifty was supported by TCS, Bharti Infratel while it was dragged by RIL, ICICI Bank, Adani Ports, HDFC, ITC, HDFC Bank, L&T, SBI, VEDL & Maruti by combined around 85 points. Overall, selling pressure was quite visible across all the sectors like Pharma, PSBS, Auto, FMCG and infra. It’s may be quite clear that FIIs are in selling spree and they may be investing in other BRIC/EM for relatively cheaper valuations & higher growth optimism coupled with deregulations & financial reform.

Indian Market Slips Further On Dilemma Of Govt’s Fiscal Stimulus & Fiscal Discipline:

After opening in positive territory amid mixed global/Asian cues, Indian market (Nifty Fut) slips soon on dilemma of Govt’s fiscal stimulus & fiscal discipline to revive the slowing economy ahead of general election in late 2018 or early 2019 along with series of state elections.

Sudden slowdown of the economy after DeMo & GST along with ongoing effort of deleveraging & bank credit tightening, war against NPA etc may be also affecting the overall employment situation in the country, which in effect may be a significant political risk & source of social instability for the Govt, facing the next general election, despite no credible opposition party/leader as of now.

Indian market sentiment may be also affected today after a Reuters poll of economists predict that RBI will not only hold rates in Oct, bit may also on hold for rest of the FY-18; economists has also slashed their GDP projections for FY-18 with upwards projection of CPI above RBI 4% target for this FY. There are growing pressures on the Govt/RBI to go for much bigger rate cuts around 1% at least in the days ahead as a part of Govt’s fiscal stimulus package.

Globally, Most of the major Asia-Pacific markets except India & Japan were in slight green today tracking mixed global cues amid renewed concern of a NK ICBM retaliation after Trump imposed more sanctions on Kim’s & other NK individuals’ and bank’s foreign assets/financial networks and hopes for a definitive details about US tax reform proposals coupled with a hawkish Yellen yesterday.

Trump yesterday commented that although US is perusing its diplomatic effort to “peacefully” denuclearize NK, it’s also “totally prepared to use devastating military forces” against the rouged nation!! As par Trump, previous political regime in US should fix this NK issue 25 years ago rather than allowing it to at the current nuke enabled ICBM stage and thus he is “seeing” how to fix this legacy problem now.

Although, China is actively “cooperating” to impose US/UN led sanctions on the isolated nation (NK), China may be also against any “regime change” idea in NK and as par some military experts, it’s also very doubtful for NK’s technical ability to shoot down a US bomber plane, but market may be anxious about any miscalculation from either side amid escalation of hot rhetoric between Kim & Trump. Still market is cool assuming that diplomacy will prevail over war hysteria ultimately.

USD yesterday got some boost after partial disclosure of RNC tax plan involving individual tax rate; market may be now waiting for the US corporate tax plan slated to be released later in the day today; as par some reports it may be fixed around 20-22.5% against Trump’s narrative of 15%.

As par US Com Sec, US TSY should gain around $3 tln in next ten years because of this US tax reform plan with simplification & deregulation; although rate may be lowered, various deductions may not be there also resulting in net gain for the TSY!! In that sense, US corporates may have to dish out more taxes in lieu of savings earlier for various deductions scope.

USD bulls also got some boost yesterday after Yellen sounds “modestly” hawkish advocating for a Dec’17 rate hike for concern of overheating of the economy even if US CPI stays subdued coupled with her comment that “uncertainties strengthen case for gradual rate hikes”.

Yellen believes that as US job market is going tighter, the resultant wage inflation may cause sudden surge in the inflation and in that scenario, if Fed does not go for gradual rate hikes now, it may found itself behind the inflation curve and may have to hike abruptly later causing more pressure on the economy, even another recession.

Thus, now it seems that Yellen is determined to hike in Dec’17 just for the credibility of Fed’s dot-plots irrespective of the trajectory of US inflation & other economic data except any terrible geo-political events and subsequently market (FFR) is now showing almost 78% of a Dec rate hike significantly up from around 40% few weeks ago, before the Fed meet.

Yellen & her team (FOMC) thus planning for a Dec’17 rate hike as par Fed’s 2017 projections of three hikes in 2017 and may left the rest of 2018 rate hikes (another three ?) to the next Fed team under a new leadership as Yellen may not get the extension from Trump this time. Thus, market may be also in doubt about present policy continuity by Fed next year under new leadership and credibility of Fed’s current projections of 2018 rate hikes.

New FOMC may have less appetite for future rate hikes in 2018-19 in line with Trump’s policy for a depreciated USD to make “America great again”. Thus, although a Dec’17 rate hike looks certain as of now, market may be doubtful Fed’s 2018 dot-plots credibility & subsequent rate hikes. In that scenario, it may be looked tough for the USDJPY to sustain above 115 amid ongoing NK-US “war of words” despite a hawkish Fed, optimism about US tax reform.

A higher USD may be good for export heavy Asian as well as EU markets, but may not be good for the US market & its economy. Despite a hawkish Fed eager for normalization and some visibility of Trumponomics/US tax reform, USD may be within the defined range of 108/110-115 in the coming days as NK jitters is helping it to come down “time to time” in line with Trump’s talk down effort/preference to keep the USD lower for the benefit of US.

The surge in US defence capex & exports is not only acting as a fiscal stimulus for US economy, but may be also acting as the same for SK & JP economy as they are on a defence spending spree to “counter NK attack (rhetoric)”. Thus, the legacy NK geo-political tension may be a permanent feature of the financial market as it’s helpful for the great “volatility” and market is also finding it as an “opportunity”.

Overnight, US market closed almost flat tracking disappointment of US health care bill; but some bargain hunting in the battered down techs/FANG stocks has helped the market along with healthcare (failure to repel Obamacare) and banks & financials (higher US bond yields).

Both DJ-30 and S&P-500 closed almost flat, while NQ-100 gained around 0.20%; US stock future (SPX-500) is now also trading almost unchanged around 2495 tracking mixed Asian cues ahead of EU market opening, which is slated to open higher on weaker EUR & some M&A news.

Elsewhere, Australia (ASX-200) closed around 5664, almost flat (-0.10%) and was dragged by IT/Techs, Telecoms & Gold miners, energies while it was helped by banks & financials, metals/miners, resources, exporters and some healthcare/pharma cos. Some drops in AUDUSD (-0.25%; 0.7855) may have also helped the overall AU market sentiment today. A stronger USD because of higher US bond yields may have kept AUD lower today despite good economic data (Industrial profits) from China.

Japan (Nikkei-225) closed around 20267, dropped by almost 0.31% despite lower Yen today. USDJPY is now trading around 112.70, up by almost 0.42% on US tax reform optimism & a hawkish Yellen yesterday shrugging off fresh NK “war” rhetoric and US sanction. JP market was today dragged by automakers, banks & financials and trading houses, while it was helped by exporters to some extent.

China (SSE) closed around 3345, almost unchanged (+0.05%) helped by an upbeat industrial profits data for Aug, which came at +24% (YOY) against July figure of +16.5%; this is a huge jump and best in the last four years on higher PPP inflation and lower input costs; i.e. better pricing power by the Chinese cos. Oil, steel, electronics led the gain despite huge corporate deleveraging.

Today’s solid China industrial profits may have also tampered down the China slowdown fear amid optimism about ongoing SOE (PSU) reform and market may be also very much optimistic about China Govt’s principle not to allow any disorderly movement in the financial market, which may cause significant social unrest & political risk. Thus, market is also expecting some stimulus measures from the Govt after the Party Congress next month for a stable & less leveraged economic growth.

Today China market was helped by resources (industry consolidation), commodities and property developers, while it was dragged by some banks shares on lock in period end issues (more supply in the market). PBOC today fixed the mid-point of USDCNY at 6.6192 vs 6.6076, a little higher with a net drain of 40 bln Yuan (no OMO today). Overall, a cautious China beige book commentary today may have also affected the market sentiment.

Similarly, Hog-Kong (HKG-33) future is now trading around 27645, gained by almost 0.30%, bucking the regional trend on renewed China optimism & bargain hunting for the China based property developers. HK market was also helped by resources, news of China SOE reform & deleveraging and materials/metals sectors.

Meanwhile, Crude Oil (WTI) is now trading around 51.90 almost unchanged after making a high of 52.39 yesterday on Turkey’s rhetoric about Iraq oil supply disruption; it is being dragged by higher gasoline storage in the API report despite surprised/inline Crude draws. All focus now may be on the official EIA data later in the day today. But, whatever be the data & p0ther narratives, WTI now has to sustain above 52.75 zone for any further rally.

EU Market Trading Higher On Weaker EUR And M&A News:

Elsewhere, EU market is trading upbeat at Stoxx-600, which is up by almost 0.56% on weaker EUR as it continues to trade well below 1.18 against USD, which is good for the export heavy market. Today EU market was also boosted by merger confirmation news for Alstom with Siemens for their rail business to counter growing Chinese competition for the sector.

Also, banks, basic materials/resources (hopes of higher bond yields & Trumpflation/reflation) & telecoms are helping while selected retails in consumer goods such as Electrolux is dragging the market.

DAX-30 & FTSE-100 are up by around 0.40%, while CAC-40 edged up by almost 0.25% and IBEX-35 is rallied by almost 1.93% on reports that Spain Govt has declared Catalonia’s independence referendum on Sunday as illegal and ordered police deployment at polling booths to prevent people from voting!! FTSE was helped by a fall in GBP and upbeat miners, while gold miners are dragging it to some extent.