Market Wrap: 18/09/2017 (17:00)

NSE-NF (Sep):10181 (79; +0.78%)

(TTM PE: 26.44; Abv 2-SD of 25; TTM Q1FY18 EPS: 384; NS: 10153; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):25051 (+198; +0.80%)

(TTM PE: 28.24; Abv 2-SD of 25; TTM Q1FY18 EPS: 887; BNS: 25047; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 19/09/2017:

Key support for NF: 10150-10105

Key resistance for NF: 10205-10250

Key support for BNF: 24950-24850

Key resistance for BNF: 25150-25250

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10205 area for further rally towards 10250- 10325 & 10385-10455 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10185 area, NF may fall towards 10150-10105 & 10050-9995 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25150 area for further rally towards 25250-25350 & 25585-25785 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25100-25050 area, BNF may fall towards 24950-24850 & 24700-24500 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10181, surged by almost 79 points (+0.78%) and closed at a new record high after making an opening minutes low of 10140 & late day high of 10189 supported by positive global cues coupled with hopes of another fiscal stimulus by the Govt in the forthcoming budget to combat the slowing economy ahead of series of state & general election in 2018-19.

Indian market today opened in positive tone by 48 points gap-up amid positive global cues as US vows to tackle the NK crisis through “peaceful diplomatic pressure” with an open “war option”; i.e. NK tensions cools off to some extent. Also, global risk on sentiment was boosted by higher USD on hopes of a hawkish Fed after BOE turned extreme hawkish coupled with optimism about US tax reform proposal to be published on 25^th Sep.

Better than expected China home prices growth for Aug and some reports that PBOC is working on deepening the FPIS participation of Chin’s financial market reform may have also boosted the risk-appetite today.

As par some reports, Indian Govt may look into boosting exports, narrow increasing trade deficit as domestic demand is slowing down. Govt may also boost up its capex to revive rural economy & informal sector and low skilled workforce who are in acute problem after DeMo & GST. Govt may focus on strategic sales of ailing PSU assets & general insurance cos to fund its capex and may also tinker the FRBM path (discipline) in the forthcoming budget as 1^st month of GST collection is muted adjusted with huge input tax credit claims.

As a part of fiscal stimulus, Indian Govt may also create an environment by slashing deposit rate of small savings instruments, so that banks could pass on more rate cuts and RBI may also cut more to bring India’s repo rate at 5-4%, in line with China or some other EM’s at least, if not at par with the DM. Thus, banks were quite upbeat today and Bank Nifty was also surged by almost 0.80%.

Some macro data on the weekend looks good as Indian FX reserve was swelled to above $400 bln for the first time in the history; external debt was down by around 3% to $472 bln on decrease in NRI deposits and external commercial borrowings; exports was up by almost 10.30% supported by higher growths in petroleum products, engineering & chemicals shipments; but gold imports also raised by 69%.

But, India’s current account deficit (CAD) for Q1FY18 increased sharply to $14.3 bln; (i.e. 2.4% of GDP vs 0.1% YOY; 0.6% QOQ) primarily due to rise in trade deficit; not a good news for the policymakers. Another point may be that most of the booming FX reserve for India may be FPIS & NRI in-flows dependent, which may be susceptible to out flow in times of any global financial crisis or central banks tightening (QT).

Nifty was today supported by L&T, Bharti Infratel, HUL, VEDL, HDFC Bank, Indusind Bank, Eicher Motors, Bajaj Auto, IBULLS HSG Fin by around 46 points altogether. Nifty was dragged by ITC, ONGC, SBI, Tata Steel, TCS & Sun Pharma by around 10 points collectively.

Overall, automobiles, FMCG, IT, Banks, telecom infra stocks, capital goods & some metal counters were upbeat, while cements, pharma were in pressure today.

Bharti Infratel was up by over 4% on renewed optimism about tower assets sale (deleveraging). Tata Steel was down by over 1% on buzz of Odisha list of fines for excess non-ferrous mining. In addition, British Pension Plans may also face some hurdles for the Tata Steel after recent optimism about separation of the co from the pension trustee.

As valuations for the Indian market is now extremely stretched, earnings for Q3FY18/H2FY18 need to catch up with the reality; otherwise a significant correction may be inevitable despite power of domestic liquidity.

Despite all the green shoots, valuations may be quite stretched amid muted Q1FY18 earnings. Also hopes of earnings recovery in Q2FY18 & H2FY18 may be low amid subdued consumption, tepid credit growth & private investments.

Thus FIIs are in selling mode over stretched valuations & falling GDP growth after DeMo & GST disruptions apart from rising geo-political (NK) tensions. So far, Indian market shrugged off the FII selling on the power of domestic liquidity, but going ahead that domestic liquidity flow may be also in doubt as Govt is intensifying its “war on black money” & shell cos.

Globally, almost all the major Asia-Pacific markets were trading in deep to moderate green today as US vowed for “peaceful pressure campaign” on NK in the weekend after the “ missile nation” launched another ICBM over JP airspace early on Friday morning, triggering a muted risk aversion flows to the safe heaven assets as the test was in expected line this time. A supportive PBOC action coupled with decent China housing data today may have also boosted the risk-on sentiment globally.

Although, US is keeping all options “on the table” including a military action on NK, it seems now that Trump will follow the path of pressure diplomacy on the “rocket man” (Kim) with more sanction pressure tactics on NK from China & Russia to deter the “hermit state” from further persuasion of nuke capabilities. US has also indicated that Trump’s earlier “Fire & Fury” comments on NK is not a mere rhetoric and also not an “idle threat”.

As par latest reports, SK has indicated that NK is in the final stages of a nuke enabled ICBM (with bigger payload) and thus continue its “provocations” by testing more ICBM & nuke. All eyes now may be on UN general council meet & Trump’s speech regarding the NK issues tomorrow.

Geo-political events may take more centre stage this week along with Fed & BOJ amid elections in NZ & Germany, while Abe announced a surprised snap election on 22^nd Oct for JP as his political prospect looks better amid prudent handling of NK provocations after a recent corruption scandal.

Fed is expected to announce a BS tapering program this week, which may start with no further reinvestments from maturing bonds and then a monthly selling of QE bonds in its holding at a gradual pace, say $10 bln/month for next 10 years in auto-pilot mode.

As this is a new experiment by a major central banker, never tried before, as a precaution, Fed may be refrained from talks of further rate hike in Dec’17. Thus Fed’s revised dot-plot & economic projections may be keenly watched along with Fed’s statement & Yellen’s presser.

BOJ is now already purchasing less QE bonds, but with acute scarcity it’s able to maintain the desired YCC of 10YJGB around 0% even with less purchase; looking ahead it may also formally announce its intentions to keep the YCC under control around 0% without too much focus on the JGB purchase (indirect QE tapering); it may also return to ZRIP from NRIP and target 1% JP core CPI on sustainable basis as 2% CPI is still looking very remote; thus BOJ may also join the global QT bandwagon sooner rather than later along with Fed, ECB, BOE, BOC.

Overnight, on Friday weekend, USDJPY closed above 111 on hopes of a hawkish Fed on 20^th Sep after surprised hawkish hold by BOE last week and optimism about US tax reform detailed drafts on 25^th Sep; it seems that market is not convinced by the latest NK saber rattling unless some serious missteps by any sides!; so far it’s very limited to “war of words” only and market is being habituated for this ongoing “game of chickens” between Trump & Kim. USDJPY is now trading around 111.25, up by almost 0.40%.

US stock market closed around 0.25% higher in another record high, which is quite regular these days; DJ-30 gained by around 0.29%, while S&P-500 closed above 2500 level, up by almost 0.18% and NASDAQ was in green by 0.30%. Telecoms, techs & banks has supported the US market on Friday, while Oracle dragged it by some extent on poor guidance. Banks were in demand for prospect of higher US bond yields on hopes of a hawkish Fed this week, favourable for their business models.

US stock future (SPX-500) is now trading around 2505, up by almost 0.25% on positive Asian cues; technically it now needs to sustain over 2515-2525 area for further record rally towards 2560-2580 zone; otherwise it may come down and sustaining below 2485 zone, may again fall towards 2450-2415 zone in the coming days.

Elsewhere, Australia (ASX-200) closed around 5721, up by almost 0.40% supported by banks & financials coupled with energies & consumer discretionary while dragged by exporters, metals & mining stocks. Some deleveraging news in the AU banking space (ANZ & Wealth Australia) has also helped the AU market today.

AUDUSD is trading up by around 0.30% today at 0.80182 on general risk-appetite after no fresh NK headlines/provocations on the weekend ahead of NZ election this week, which may be quite close this time; but overall NZD positive as both the parties may reform the RBZ institution mechanism creating a MPC concept in line with global practice; this may be also positive for the AUD for regional factors. Also, good China home prices data & AU vehicle sales has helped the AUD today despite some early fall in metals.

Japan (Nikkei-225) is closed today for public holiday; but Nikkei-225 Fut is trading around 0.50% higher on weaker Yen; USDJPY is trading above 111 on hopes of a hawkish Fed this week ahead of BOJ coupled with US tax reform optimism and JP political risk.

As par some reports, Abe may soon announce a snap JP poll to be held on 22^nd Oct, taking advantage of surging approval rating because of prudent handling of the NK crisis after a recent land corruption allegation involving his family members. JP oppositions are also now in good shape, which is ideal for a snap poll, after recent debacle in Tokyo local election.

But, there is also some risk of Yen strength later this week as BOJ may hint a backdoor QQE tapering in the days ahead in line with global tunes of QT.

China (SSE) closed around 0.28% higher at 3363 on firm growth of China housing prices for Aug, which came at 8.3% against 9.7% for July (YOY) despite ongoing crackdown on property speculation & leveraging by the regulators; property developers are helping the market today. PBOC today fixed the mid-point of USDCNY almost flat at 6.5419 vs 6.5423 and injected 20 bln Yuan through OMO today.

Hong-Kong (HKG-33) Fut is now trading around 28135, up by almost 1.30% on optimism about China based real estate developers after better than expected growth in China housing prices data today coupled with gains in blue chip internet co Tencent on optimism about its virtual reality games. Also, some automobiles & pharma cos (for M&A new with India’s Gland Pharma) are helping the HK market today, which is supporting the overall regional market sentiment.

Meanwhile, Crude Oil (WTI) is trading around 50.10, up by almost 0.45% after some fall in US gas rigs data (Baker Huges) on Friday coupled with an early rebalance optimism by IEA & OPEC and resumption of refining in Harvey hit US areas. However, WTI has to break above 50.50 area for further rally towards 52 area; otherwise expect some correction.

Meanwhile, EU market is up by around 0.34% in Stoxx-600 as NK tension cools off after muted US response so far; also China optimism may be helping the overall EU/global market today. EU market is being helped by telecoms (deleveraging news) & industrials, while airlines are dragging it after cancellation of several flights by Ryanair. Some insurers are also dragging the EU market today on higher than estimated claims from Harvey hurricane.

Dax-30 is up by almost 0.35%, but off the high on subdued GDP projection by BUBA on recent strength of EUR; German election this week may be interesting as a Merkel win could help the market, although widely in expected line.

CAC-40 is up by almost 0.30%; FTSE-100 is up by around 30% on some drops in GBPUSD today after an epic rally on the weekend amid hawkish jawboning by BOE & prospect of a soft Brexit (?). Today FTSE is being supported by banks & financials coupled with energies and defence related cos & some deleveraging news from some insurer co (Ensure). But tobacco related cos and gold miners are dragging the UK market by some extent.