Market Wrap: 26/10/2017 (17:00)
NSE-NF (Nov):10357 (+32; +0.31%)
(TTM PE: 26.80; Abv 2-SD of 25; TTM Q1FY18 EPS: 386;
NS: 10344; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)
NSE-BNF (Nov):25066 (-26; -0.10%)
(TTM PE: 28.40; Abv 2-SD of 25; TTM Q1FY18 EPS: 881;
BNS: 25022; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)
For 27/10/2017:
Key
support for NF: 10325-10270
Key
resistance for NF: 10450-10505
Key support for BNF: 24800-24600
Key resistance for BNF: 25250-25500
Hints for positional trading:
Indian market (Nifty Fut/India-50)
today closed around 10357, edged up by almost 32 points (+0.31%) after making
an opening minutes’ low of 10301 & closing session high of 10371; Nifty
Spot today made another lifetime high of around 10356 and closed around 10344,
up by 0.50% on mega stimulus boost (plan) of Rs. 9 tln in PSBS & road infra.
Indian market today opened around 10310, edged down
by around 15 points on muted global/US
cues tracking subdued US corporate earnings, renewed uncertainty over Fed
Chair & US tax reform. Soon after opening, it went into consolidation mode
and focused on fine prints of PSBS recaps and lofty valuation of the
same after yesterday’s epic rally, which caused India to enter into the elite
club of $2 tln market cap.
But supportive EU market after some dips in EUR ahead of ECB and buzz of truce/fresh
election in Catalonia may have supported the Indian market sentiment also and
coupled with that, PSBS recap plan clarification by the Govt, market made a
late day small rally & closed the Oct exp with 6% gain, the most in 2017,
primarily led by mega stimulus plan for the PSBS & subsequent huge short
covering.
As par some reports, Govt may also unveil a comprehensive food processing policy for the 1st time
aiming for food retails, which may bring significant FDI into the country and
give a boost to retail food giants like Walmart, Tesco, and Carrefour. Govt has
also committed for progressive liberalization of food retail policy and
eventually include non-food items.
Along with optimism about Govt’s bazooka of around Rs.9 tln
stimulus in PSBS & road infra, market has may have also cheered up positive result from HUL, a proxy of rural
India economic recovery story
after DeMo & GST blues coupled with another upbeat data about air traffic, which accelerated by
around 16% in Sep, indicating revival of urban consumption.
But all these data boost may be also seasonal (festival/holiday
season) and solid growth in air traffic may be due to flood related disruption
of railways in various parts of the country, forcing people to take the costly
air alternative. Sudden volume surge in HUL (FMCG) may be also due to factors
related to GST de/re-stocking.
Govt “sources” today tried to clarify some points about PSBS recaps announced
day before yesterday (issuance of Rs.1.35 recap bonds without hurting fiscal discipline):
·
Govt may form a holding company for PSBS
·
Holding company model
seen as the most preferred option
·
Govt to transfer its stake in PSBs to holding company
·
Recap bonds to be issued by the PSB holding company
·
Holding co structure to
ensure there is no impact on the fiscal deficit
·
Funds raised by holding co
not to be counted as sovereign debt
·
No clarity yet if holding
co will work as bank investment co
·
Direct issuance of bonds by Govt could spike fiscal deficit by
0.5-0.6%
Govt Sources:
·
Weak banks unlikely to be given growth cap, may receive only
provisioning amount
·
Recap bonds not be
zero-coupon bond
·
Recap bonds should carry
a market determined coupon & also to be non-SLR
·
Govt To Issue
Front-Loaded Banks Recapitalization Bonds In FY 2018
·
Govt Share In Banks To Initially Go Up After Issue Of Banks
Recap Bonds
·
Bank Recapitalization To Precede Govt's Equity Dilution In PSU
Lenders
·
Looking at bonds issued
in mid-90s as a template for new recap bonds
Govt official says:
·
New PSU recap bonds
unlikely to reflect on fiscal deficit
·
Annual interest burden on recap bonds to be borne by Govt
·
Recap exercise may require some 'write off' of bad debt apart
from NCLT process.
Thus, it’s clear that Govt will first form a “holding co” and
then proceed to the whole recaps process by issuing special bonds to avoid the
fiscal deficit breach question and bail out the fragile PSBS. From the overall
financial engineering plan, it seems that the whole recap process may take
several years and any economic benefit or recovery in credit growth, private
investments may also take several years; it’s
a long term process (min 2-4 years).
In the short to mid-term, this will not affect earnings of the
PSBS or overall momentum of the economy, although it may be a “monumental step”
for country’s economic future as observed by the RBI Gov. Most of the PSBS
& some private banks which soared yesterday has reacted negatively to this “trial
balloon” by the Govt and closed in negative today.
Today Nifty was supported by IOC, HPCL, Maruti (analyst upgrade), RIL (telecom and oil
&gas optimism/capex plan with BP), VEDL, L&T (road construction
stimulus by the Govt), Infy, HDFC, BPCL & Axis Bank by around 52 points
cumulatively.
Nifty was dragged by ICICI Bank, HCL Tech (muted report card), SBI, TCS, IBULLS HSG,
Power Grid, Tata Motors, ITC, Bosch & Bharti Airtel by around 24 points
altogether.
Overall, Indian market was today helped by energies/OMC (earnings
optimism & analyst upgrade), metals, infra & selected techs, while
dragged by PSBS/selected private banks & NBFC. For the Oct exp, Bharti
Airtel surged by 34%, followed by SBI (+27%) and RIL (+20%), while Axis Bank,
Yes Bank and Bajaj Fin fell by around 5% each.
Global Cues Are Muted On Renewed Fed Chair & US Tax Reform Uncertainty:
Asia Edged Up On Mixed Earnings, Stable USD & Muted US Cues Ahead Of Draghi:
EUR Tumbled Below 1.17 On Dovish QE Tapering By ECB:
SGX-NF
EURUSD
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