Market Wrap: 25/09/2017 (17:00)

NSE-NF (Sep):9880 (-103; -1.03%)

(TTM PE: 25.73; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 9880; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24204 (-222; -0.91%)

(TTM PE: 27.24; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24165; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 26/09/2017:

Key support for NF: 9860-9800

Key resistance for NF: 9920-9970/10000

Key support for BNF: 24050-23850

Key resistance for BNF: 24300-24600

Hints for positional trading:

Technicals indicate that, NF has to sustain over 9920 area for further rally towards 9970-10000/10050 & 10105-10150 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9900 area, NF may fall towards 9860-9800 & 9745-9695 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24350 area for further rally towards 24525-24600 & 24700-24875 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24300 area, BNF may fall towards 24050-23850 & 23700-23600 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 9880, dragged by almost 103 points (-1.03%) after making an opening minutes high of 9969 and mid-session low of 9841 on dilemma of fiscal woes & Govt’s talks of an imminent fiscal stimulus package coupled with subdued global/Asian cues on China jitters & renewed concern of ant-establishment (anti EURO) politics in Germany/EZ.

But, Indian market was able to trim some loses in the last hour of trade on buzz that Govt/FMO/PMO may soon announce a power reform package & certain other measures to revive the slowing economy after the ongoing BJP party conclave/executive meet.

After market hours today, Govt has indeed announced its Power Reform package under “Saubhagya” aiming “electricity for all willing households” to substitute Kerosene; overall power stimulus package is around Rs.16320 cr & gross budgetary support is around Rs.12320 cr. Under this scheme of “free electricity”, states are required to complete all eligible household electrification by March’19 & discoms will recover Rs.500 connection bill in 10 installments.

Generally, Federal Govt will fund 60%, while 20% will be funded by the state Govts and rest 30% by loans; for special category of states, it will be 85%, 5% & 10%. Thus, this a power stimulus package intended not only for the stressed power sectors, where supply is more than the demand for tepid industrial activities but may be also intended for the coming elections. But, effectiveness of this “power scheme” to stimulate the overall economy may be in doubt with increasing subsidy burden of the states as well for the Federal Govt also.

Govt also formed today a new PM Economic Advisory Council (PM-EAC) to address macroeconomic, unemployment, fiscal deficit & various structural issues with some well known economists to dig the Indian economy out of its biggest slump in the last three years ahead of series of elections next year.

Nifty today was supported by ICICI Bank, RIL, HUL, ZEEL, TCS by total around 10 points, while it was dragged by ITC, HDFC Bank, IOC, HDFC, Adani Ports, L&T, Kotak Bank, Eicher Motors, IBULLS HSG & Maruti collectively by around 70 points. Overall, market was dragged by banks & financials, FMFG, Infra, Auto & Pharma stocks.

Indian Market Fall In Deep Red On Dilemma Of Govt’s Fiscal Stimulus Package To Dig The Economy Out Of Its Biggest Slumps Since 2014 & Concern Of Fiscal Slippages:

After opening almost flat, Indian market today further fall to the low of 9841 on dilemma of Govt’s fiscal slippages and stimulus to revive the economy from its deepest slumps in the last three years since NAMO took office.

Indian Govt may be also concerned about the impact of overall slowing down of the economy after DeMo & GST and its adverse effect on the employment situation in the country especially in the informal sector ahead of series of elections next year and also the general election in the early 2019.

Market may be concerned that in case of fiscal slippages because of additional Govt stimulus to the tune of almost $7.7 bln (?), rating agencies may further downgrade India, which is now just above the junk rating level; if that happens, FPIS may be forced to trim their investments in the bond & equity market despite hopes of a widespread recovery from 2019-20.

FIIs are now already in the selling mode on concern of stretched valuation, political populism by the Govt ahead of the general election, earnings downgrade for H2FY18 coupled with fiscal slippages & a slowing economy (falling GDP), despite some “green shoots” in the economy. Also, growing NK related narratives might be making them risk-adverse from the overall EM market, except China on financial market reform & relatively cheaper valuations.

Market may be also concerned about the effectiveness of Govt’s fiscal stimulus package which may be too little & too late and may not improve the overall consumer spending dramatically, because the issue may be structural. The transition from “black money” oriented economy to “white money” may take another few years to complete and traditionally almost 30% of India’s consumption may be dependent on the “black money”. Thus, 30% slump for the Indian GDP since DeMo days may not be quite unnatural.

As a part of fiscal stimulus, RBI may be under immense pressure this time to cut (Oct meet); but considering various macroeconomic scenario & increasing global chorus of QT, bond yield differential factors, RBI may not oblige until H2FY18; rate transmission ability by the banks may be also a primary factor in RBI’s decision.

Rating agency Moody’s expecting that India’s fiscal deficit for FY-18 may be expected around 6.5% and Govt’s fiscal objective may be consolidate assuming this as one off fiscal package; but overall fiscal stimulus size & composition may be more vital.

Globally, almost all the major Asia-Pacific markets, barring JP are in red today tracking subdued global cues after less than expected margin of victory in both German (Merkel) & NZ (English) election yesterday. Market may be more concerned about Germany as a far right wing anti-establishment party (AfD) wins around 13% of votes, far more than expected while Merkel’s party (CDU) has won 32% against estimate of around 40% and main opposition Social Democrats (SPD) has won 20%.

Although, a coalition Govt was expected in Germany this time, the surprised strength of AfD coupled with anti-soft Brexit approach for UK by the SPD may force Markel to rethink about her pro-immigration & soft Brexit stance once again. Thus, the overall EU political uncertainty may again gain some momentum, which was somehow stabilized after Macron win in France few months ago. But, so far EURUSD has not reacted too much as the overall impact out of German election may be very limited as of now.

Market may be also concerned about political uncertainty of Japan, going for a snap poll next month; although Abe is slated for a victory after his “cool” handling of the NK ICBM threat so far despite some recent allegations of corruption involving his close family members for a land related scandal. The margin of victory and forming of a coalition Govt may matter most also for the JP election as with German & NZ.

Ahead of official announcement of the JP election scheduled to be held on 22^nd Oct, Abe may announce a fiscal stimulus package 2 tln Yen shortly for the “real street” (economy) as the QQQ is failed to stimulate the same so far although it may be working fine for the “wall street”.

As par Abe, the fiscal stimulus will be commenced from Jan’18 and may be funded by the proposed increase in VAT (+2%) from Oct’19 and it will be effective till 2020 with focus on education subsidy, child care costs & private/corp investments with utmost care to the JP fiscal discipline.

Market may be also concerned about escalating “war of words” between Kim & Trump and their daily dose of “entertainment” because a missteps by either of them may be proved as fatal not only for the financial market but may be also for the entire region and world; it’s like a “dooms day scenario”!!

Apart from geo-politics, market may be also concerned about China’s ongoing regulatory tightening in real estate markets as it was traditionally a major source of growth (economic activity) for the country; a slowing China may be more bad than a slowing US or EU; recent S&P downgrade, although may be “toothless” and came very late, is also an eye opener not for China, but may be also for the entire region including India.

Overnight, on Friday weekend, US market also closed almost unchanged on NK jitters & US policy squabbling; US healthcare bill (Trumpcare) may not be passed by this month and thus the previous Obamacare bill may continue for the time being. This is positive for the US healthcare (Pharma) cos and thus they have helped the market along with energies as oil is continuing to hover above $50 on hopes of a quicker rebalancing.

Telecoms also helped the US market in the weekend for ongoing M&A buzz between Sprint & T-Mobile and subsequent consolidation & cost cutting measures in the sector. Banks also supported the market on higher US bond yields, favourable for their business models. But Techs/FANG stocks including Apple dragged the market.

Overall, US market may be now waiting for Trump’s tax reform proposal scheduled to be announced today (corporate tax may be fixed around 20-22.5%) along with trend of Q3 corporate earnings. But market may be also concerned about overall impact of Fed BS/QE tapering on the real economy & the financial market, being unknown so far & never tested before along with escalated levels of “childish” rhetoric between the “little rocket man” (Kim) & the “deranged dotard man” (Trump).

US stock future (SPX-500) is now trading around 2500, almost unchanged amid EU political & NK “earthquake” concern and hopes for tax reform policy details later in the day today.

Elsewhere, Australian market (ASX-200) closed almost unchanged around 5684; it was helped by banks & financials (big 4-AU Banks) & miners to some extent, while dragged by telecoms, A-REITS & consumer staples.

AUDUSD was trading around 0.7960, almost unchanged after Friday’s slump on dovish rhetoric by RBA; regional currency sentiment was also affected by below expected level of win by English in NZ, but after early slump, market may be stabilizing now on hopes of formation of a coalition Govt by next few weeks.

Japan (Nikkei-225) closed around 20398, up by almost 0.50% in contrast to the regional trend on early strength in USD helpful for JP exports & the market. Today Yen got more weakness after subdued JP Mfg PMI data and fiscal stimulus package talks ($18 bln) by Abe.

BOJ Kuroda also commented about “close watching” of Yen level as NK crisis could affect the FX market (safe heaven appeal of Yen due to its net creditor status). USDJPY was trading around 112.20, up by almost 0.20% ahead of the much awaited US tax reform draft later in the day today.

JP stocks were supported by exporters, automakers while dragged by banks & financials and some oil& gas related stocks.

China (SSE) is closed around 3342, lost almost 0.33% on increasing regulatory tightening over its real estate space and subsequent concern of property curbs, deleveraging and economic slowdown fears; it was dragged by property developers. Also, ongoing regulatory action against shadow banking/lending and environmental concern related production cuts may be affecting the overall China economic activities & growth, negative for global reflation & metal demands.

PBOC today fixed mid-point of USDCNY at 6.5495 vs 6.5861 on Friday, which is at lowest since 31^st Aug and drained 80 bln Yuan.

Hong-Kong (HKG-33) future is now trading around 27510, down by almost 1.20% affecting the overall regional market sentiment over China’s regulatory measures to cool down its increasingly “hot” property market. HK market was today dragged by China based property developers as authorities imposed curbs on resale of homes in eight large China cities (between 2-5 years). Overall sentiment was also affected by S&P downgrade of both China & HK last week.

Meanwhile, Crude Oil (WTI) is now hovering around 50.50, down by almost 0.30% on OPEC squabbling about production cut extension and hopes of an quicker rebalancing; but falling demand from Indian & China may be also a great concern and WTI thus need to sustain over 50.50 convincingly for any further rally from here.

EU Market Edged Higher On Lower EUR After Unexpected Surge In Anti-Establishment Politics In Germany:

Elsewhere, EU market is also in positive shrugging of German election disappointment as EUR goes lower after the result, helpful for the export heavy EZ economy & the market. Financials dragged the market today, while healthcare, energy & industrials are helping the same; mounting political tensions over Spain’s Catalonia’s independence campaign is also affecting the Spain as well as the overall market sentiment.

Also, China slowdown concern is affecting the market, while energies are supporting it to some extent. Stoxx-600 is up by almost 0.25%, while DAX-30 edged up by 0.15%, FTSE-100 is almost unchanged,, CAC-40 is down by almost 0.15%.

FTSE-100 was helped today by some early fall in GBPUSD after Moody’s downgrade UK on the weekend for Brexit uncertainty and slowing economy with rising household debts. But a strong GBP against EUR after the German election disappointment is also affecting the UK market sentiment along with Banks after BOE warning of stressed & high consumer credits.