Market Wrap: 13/09/2017 (17:00)

NSE-NF (Sep):10097 (-11; -0.11%)

(TTM PE: 26.25; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10079; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24825 (+42; +0.17%)

(TTM PE: 28.00; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 24832; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 14/09/2017:

Key support for NF: 10085-10030/9960

Key resistance for NF: 10140/10160-10205

Key support for BNF: 24725-24600/24500

Key resistance for BNF: 24875-24975/25075

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10160 area for further rally towards 10205-10250 & 10325-10385 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10140 area, NF may fall towards 10085-10030 & 9960-9920 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24975 area for further rally towards 25075-25150 & 25250-25585 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24925-24875 area, BNF may fall towards 24725-24600 & 24500 -24250 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10097, down by almost 11 points (-0.11%); well off the mid-day high of 10145 and made a closing session low of 10078. After opening almost flat around 10105, it rallied to almost the life time high of around 10150 by mid-noon trade and also gyrating there quite some time even after slight weak opening of the EU market on Apple i-Phone woes.

But, in the last hour of trade, Indian market cracked quite swiftly on reports that Govt is not prepared to roll back the higher ED & other tax components on petro products due to ongoing fiscal constraint and instead may ask the OMC to bear some pain for concern of ballooning inflation!! This may be a minor hiccup for the reform savvy Govt image and market sold off along with the OMCS.

There was also some report by a leading foreign investment bank (DB) that some live bugs were found in a Domino’s Pizza seasoning sachet citing some FB posts and such incident could be potentially serious like earlier cases of worm in Cadbury chocolates, lead in Maggi noodles sachets and pesticide in Coke; subsequently JBL plunged by over 6%, dragging the whole mid-cap index.

Also coincidentally, another report indicates that US Prez Trump has some construction related business interest in India (Trump towers in Mumbai, Pune, Noida, Kolkata), in which some of the Indian partners are active BJP high profile members or very close to the Govt and thus there may be some risks of conflict of interests & unethical business practices or Govt policy swing. This report may be against clean image of the Govt/BJP.

But, whatever be the narratives market may be concerned over stretched valuation & muted Q1FY18 earnings at (-) 2% QOQ and the above mentioned reasons may have just acted as a trigger/excuse for sell/profit booking in longs after record rally, both locally & globally. Market may be also concerned over global tunes of QT in the coming months.

Govt has also tried to calm the nerves of the market by announcing some incremental reforms like tweaking of FPI caps in corporate bond market and signaling some types of recap bonds for PSBS recapitalization, but market was unfazed.

Today Nifty was supported by RIL, Sun Pharma, HDFC Bk, Tata Power, DRL; collective contribution by around +15 points.

Nifty was dragged by IOC, ITC, HDFC, BPCL, VEDL collectively by around 21 points.

Overall, RIL saved the day today on optimism about better SGX-GRM on US Harvey issues and it made a fresh life time high before closing at above 3% higher and OMCS (IOC/BPCL) dragged the market on concern of price increase roll back. Pharma was upbeat on fresh product approval optimism from US FDA & hopes of better inspection reports.

Although, Govt is defending the record high gasoline prices in India on recent hurricanes in US and subsequent price increase there, it may be quite wrong. Crude prices has fallen in the international market and India imports crude to refine it into gasoline of its own and probably, it does not import refined gasoline from US either!!

At around $50 WTI, retail price of petrol in India should be around INR 55/lt considering USDINR exchange rate, reasonable/standard tax component by the Govt (around 25%), refining margin & dealer’s commission; whereas petrol is being sold at around 80/- per lt due to incremental taxes being imposed on it from time to time by the Govt for a source of easy revenue.; total tax component on gasoline may be more than 55% in India.

A rising gasoline prices puts consumer in pressure & inflationary in nature, thus affecting the discretionary consumer spending also; it’s a legacy issue in India and every Govt from states to centre irrespective of any political colours has used it as a easy revenue generator, even at times of crisis. Thus, petro products need to be brought within GST ambit immediately in line with major economies.

At 10100-10200 NS, Q1 TTM PE may be around 26.30-26.55, which may be quite expensive by historical standard and well above the 2-SD of 25, considering average CAGR of Nifty EPS of around 7% in the last few years despite signs of some green shoots.

Indian Market Closed Almost Flat Tracking Mixed Global/Asian Cues; 10160-10205 May Be A Big Hurdle For Nifty-Fut In The Days Ahead As Valuations Are Quite Stretched & Further Rate Cut Hopes Also Diminished:

Indian market may have also focused today on higher trajectory of CPI (3.36%) & also core CPI at almost 4.5% released yesterday, which is almost at the upper end of RBI projection for H1FY18 and thus expect RBI to stay neutral in Oct or even Dec’17 to see actual impact of GST (increase in service tax) & widespread floods on inflation and growth. All eyes may be now on the WPI tomorrow.

PSBS were in focus today after news that RBI has suggested options of recap bonds issuance by the Govt to recapitalize the PSBS, although it may be now at very early stages of discussions only. But this news may have also boosted the PSBS suddenly in yesterday’s trading itself.

Also, an early Diwali gift by the Govt yesterday by increasing DA (+5%) to the Central Govt employees & pensioners may have boosted the sentiment of the market ahead of festival season (hopes of better consumer spending).

Globally, Asia-Pacific markets were mixed today tracking an upbeat closing of Wall St coupled with dips of techs/Apple components suppliers after an expensive, but high end new i-Phone model launch yesterday and further delay in actual launch/shipments to Nov 1^st week. Also some other mobile tech cos are in pressure for the new smart i-Phone models as it may also affect their sales in future, if they will not be able to produce similar tech savvy features in their models.

Overnight US market closed in moderate green around 0.30% higher helped by extension of Irma & NK relief rally coupled with banks & financials on higher US bond yields, positive for their interest hike capability and NIM (business models).

Apple dropped after launch of its new mode on concern of high price & delayed shipment as it was rallied already before the launch (buy on rumour & sell on facts) and some techs were also in pressure coupled with McDonald after downgrade by some analysts.

USD/US market sentiment was also supported yesterday by some tax talks by US TSY Sec at an investment conference indicating passage of the same by Dec’17 with retrospective effect from Jan’17 and optimism over Trump’s election rhetoric of fiscal/infra stimulus measures.

But, risk-on mode suffered some setback yesterday after NK issued another “dire warning” for US for the latest UN sanctions on the country, although it was watered down significantly and practically may not resolve the NK crisis at all!!

In his busy Irma schedule, Trump also commented that “sanction against NK is very small step and nothing compared to what ultimately will happen to deal with the country’s nuclear program”. Thus “war of words” between NK & US is again in the forefront and this game of chickens may also continue for the foreseeable future, until some serious miscalculations from both the sides.

Although, damage from Irma may be much less than earlier estimate, overall damage from dual hurricanes of Harvey & Irma may be close to $150-200 bln, which is still huge. On the weekend, another potential hurricane (Jose) may also hit some of the US metropolitan areas, although with much less intensity.

DJ-30 was closed around 0.28% higher, while S&P-500 gained by 0.34% to 2496 and NASDAQ were up by also 0.34%; both at record high.

Overall, investors are hopeful that rally in US market will be supported by adequate growth in corporate earnings and steady real wage growth for the US consumers, positive for consumption.

US stock Fut (SPX-500) is now trading around 2492, almost flat (-0.06%) on mixed Asian cues after drops of Apple related chip makers & component manufacturers. Technically, SPX-500 now need to sustain over 2505 area for next phase of rally; otherwise sustaining below 2488-2480 zone, expect some correction. USDJPY is now trading around 110, down by almost 0.12% ahead of US PPI data today.

Elsewhere, Australia (ASX-200) closed almost unchanged at 5744 on higher AUDUSD (0.8031; +0.20%) negative for exporters coupled with upbeat banks & financials, Pharma and basic materials, metals & mixed gold miners on higher commodity prices; energies were also subdued today.

AUDUSD is being supported today by NAB forecast of multiple AU rate hikes in 2018-19 beginning from Aug’18 from earlier March’18 on better economic prospect (stronger employment, GDP & private investments). Also an upbeat consumer sentiment data for Sep & higher commodity prices has supported the AUD sentiment today.

Technically, AUDUSD has now support at 0.80-0.798260 and sustaining above 0.80590-0.81260 may further rally towards 0.8310 zone in the coming days; RBA jawboning & geo-political jitters may be some of the risks for AUD.

Japan (Nikkei-225) was closed around 18966, up by almost 0.45% on softer Yen, positive for JP economy & the market. JP market today was also helped by banks & financials in line with broad global trend supported by higher bond yields; also automobiles & most tech names has supported the market today. Subdued PPI & upbeat BSL Mfg conditions may have also weakened Yen to some extent today in the early Asian session.

China (SSE) also closed in marginal green around 3384 (+0.14%) on optimism about robust growth & further reforms ahead of the Party congress after recent deleveraging drive by PBOC; it was today helped by consumer & property developer/real estate stocks, while dragged by banks on concern of hard landing/shadow banking & liquidity (smaller banks) on tighter regulations.

Also, Apple related component manufacturers has dragged the China market today, while ethanol producers has helped it on news that Govt may allow us of ethanol in gasoline from 2020 for environmental concern. China is also planning for extensive use of electric cars by 2030 in line with India.

Today PBOC again fixed the mid-point of USDCNY higher at 6.5372 vs 6.5277 yesterday in line with overall uptrend of USD yesterday with neutral OMO. A higher USD may be good for China exports, but it may not be good for FPIS.

Hong-Kong (HKG-33) is trading around 23870, down by almost 0.20% bucking the overall regional/global trend on concern of Apple i-Phone delayed shipment date & expensive models (muted market response). Also, China concern on some financials & banks and property developers are dragging the HK market today, while e-car manufactures are supporting the market today amid China optimism.

Meanwhile, Crude Oil (WTI) is trading around 48.30, up by almost 0.20% on line API inventory report ahead of DOE report later in the day today. It is also being supported by an upbeat forecast of demand from OPEC for 2018 coupled with Russian & Venezuelan jawboning about further extension of production cut agreement beyond March’18. OPEC is also not expecting any significant loss of demand from Harvey & Irma.

But despite OPEC optimism, falling demand from India & China and plan of e-car from 2030 may not be good for WTI. In India, petrol & diesel prices are hovering around life time high, equivalent to 100$ although WTI is still below 50 now; thanks to very high tax component in India on petro products as an easy way of Govt revenue.

Elsewhere, EU market is trading almost flat in Stoxx-50, which is now around 3519, up by almost 0.20% on woes of mobile techs amid Apple i-Phone disappointment, basic materials, health care & consumer goods, but being helped by exporters on some drops in EURUSD, hovering around 1.19.

DAX-30 & CAC-40 is up by almost 0.10%, while FTSE-100 is down by around 0.20% on subdued UK job/real wages data; although a late fall in GBPUSD may be also helping some of the UK exporters today.

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