Market Wrap: 10/10/2017 (17:00)

NSE-NF (Oct):10036 (+19; +0.19%)

(TTM PE: 26.02; Abv 2-SD of 25; TTM Q1FY18 EPS: 385; NS: 10017; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24376 (+70; +0.29%)

(TTM PE: 27.73; Abv 2-SD of 25; TTM Q1FY18 EPS: 878; BNS: 24347; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 11/10/2017:

Key support for NF: 9980-9910

Key resistance for NF: 10065-10125

Key support for BNF: 24150-24050

Key resistance for BNF: 24400-24650

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10065 area for further rally towards 10125-10165 & 10205-10250 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10045 area, NF may fall towards 9980-9910 & 9860-9810 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24400 area for further rally towards 24550-24650 & 24750- 24850 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24350 area, BNF may fall towards 24150-24050 & 23750-23650 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10036, edged up by almost 19 points (+0.19%) after making an opening session high of 10048 and late day low of 10012. Indian market today opened around 10029, marginally up amid mixed global cues on renewed NK missile tensions and Catalonia’s independence referendum issues and basically consolidated ahead of key earnings for Q2FY18 and some macro data (IIP/CPI) to be released this week.

The result season started today with muted numbers from South Indian Bank, posting almost 96% fall in its Q2 PAT on account of exceptional higher provisions; but still, at a glance the result may be very muted on account of higher NPA and this may have affected the overall market sentiment to some extent on apprehension of another subdued earning season after Q1; market may be now expecting an average 8% growth in Nifty EPS for Q2 (YOY) amid DeMo & GST disruptions.

Although, NK has not tested any ICBM so far on its party foundation day today, it “informed” Russia that they have an ICBM of 3000 km range, which can be easily modified / modernized to reach the US territory. This news has caused some risk off mode in the global market and Nifty also succumbed for the day low.

Today Nifty was supported by RIL (GRM/earnings optimism/BP capex), Infy (record date announcement for buy back), HDFC Bank, Axis Bank (block deal), UPL, Indusind Bank (earnings optimism), Power Grid (analyst upgrade), Bharti Airtel (International roaming charges rationalization & 5G launching preparation), Adani Ports & Lupin (new product approval & launches by US FDA) by altogether around 46 points.

Nifty was dragged by IOC (stake sale by ONGC to partly fund its HPCL acquisition), ITC, ICICI Bank, VEDL, Eicher Motors, HUL, Tata Motors, HPCL, Tata Steel by around 30 points cumulatively.

Overall, Indian market today was helped by pharma/healthcare, IT/Techs, automobiles, metals, energy, selected private banks, fertilizers, sugar stocks (festival season) & infra, while dragged by FMCG.

Globally, most of the major Asia-Pacific markets were in green today in a catch up trade as Japan & SK has joined the global rally from holiday yesterday/last week. But overall “risk-on” trade sentiment may be subdued amid muted global cues on renewed geo-political tensions involving NK & Catalan separation issues.

Although, there are no visible signs of any NK ICBM test preparation till now, market may be apprehending some “big fire crackers” (ICBM) on NK’s party foundation day today till China’s party conference on 18^th Oct amid escalating rhetoric between NK & US. Russia & China both called for restraint on the part of US amid Trump’s weekend tweet that “only one thing will work”. But, US defence sec has also acknowledged that attacking NK will be a grave risk and not so simple.

Catalan leaders are set to declare an “independence” from Spain today despite some indirect offers for peace talk by the Catalan authorities amid anti-separation movement and threat of legal, economical & military action by the Spanish Govt to keep Spain as united.

As overall Catalan referendum turnover was around 43% without participation from other areas of Spain, the bloody referendum may be treated as void & nil in the eyes of Spanish constitutional law and business leaders of Catalonia are also pressurizing the autonomous Govt to withdraw the separation movement immediately in a clear language.

Although Catalonian separation movement is still simmering, it seems that those referendum leaders are slowly backtracking and thus there is no real danger of any separation immediately. But the overall reconciliation process between Catalonia & Spanish Govt may take significant time and thus there may be a certain elements of political uncertainty.

Overnight US market edged down in a holiday thinned trade on lack of any real triggers. USDJPY was also flat tracking renewed NK sabre-rattling, hurricane distorted NFP repot, doubt about passage of Trump’s tax reform bill amid “war of words” between him & another key senator and concerns about consumer spending & inflation ahead of key US retail sales & CPI data this week.

DJ-30 closed marginally lower (-13 points) at around 22761 (-0.06%), while S&P-500 slipped around 5 points (-0.2%) to close at 2545 and NQ-100 lost around 10 points to close at 6580 (-0.2%); all the US indices were off their respective life time highs made during the day in early trading.

Almost six out of eleven sectors in the S&P were in red, but pharma/healthcare stocks have dragged the US market most yesterday on concern of Amazon disruptions amid buzz of an imminent entry into the sector. GE also dragged the market following several high profile exits under the new CEO, who is also under tremendous pressure from some activist investor to reboot the co.

But techs, energy related stocks and Wall Mart (speedier product return process) has supported the market to some extent yesterday. US stock future (SPX-500) is now trading around 2545, almost unchanged before EU market opening.

Overall, US market may be cautious ahead of Q3 earnings, which is projected to grow around 3-5%, down from double digit growths in the last two quarters. Although, valuation may be on the higher side at TTM PE of above 25 for S&P-500, market is expecting that a relatively low US interest rate, Trump’s corporate tax rate cut benefits (retroactive from Jan’17?), an weaker USD coupled with higher commodity/energy/oil prices may support the Q3 earnings and justify the stretched valuations.

EURUSD is now trading around 1.1775, up by 0.28% on Catalonian peace talks, buzz of a German coalition Govt under Merkel by next week, upbeat German IIP data and some hawkish scripts by ECB’s Lautenschlaeger yesterday signaling for a gradual ECB QE tapering from Jan’18 & subsequent monetary policy normalization. A strong EUR/EU bund yields may not be good for the EU & the global stock market.

Elsewhere, Australian market (ASX-200) closed around 5738, almost unchanged on higher AUDUSD, negative for export heavy AU economy & stock market. Today, AU market was dragged by energies, techs, telecom, roller coaster movements in banks & financials while supported by basic resource materials, mixed miners & metals and some pharma stocks. Fall in iron ore and some metals may have also affected the overall market sentiment today.

AUDUSD is now trading around 0.77800, up by almost 0.30% on better than expected NAB business confidence data for Sep coupled with marginal improvement in consumer confidence.

Japan (Nikkei-225) closed around 20824, up by almost 0.64% in a catch up trade after yesterday’s holiday; reversing earlier loses tracking a lower USD today. JP stocks were today helped by banks & financials, insurance, non-metal minerals, mixed automakers / exporters / techs, while dragged by energies & steel makers (Kobe auto steel quality related scandal).

Overall, JP market sentiment was today boosted by better than expected current A/C surplus for Aug (positive for Yen). But Kuroda’s usual dovish jawboning was ineffective today as it was nothing new, advocating to keep the YCC near 0%, irrespective of the QQE as long as the elusive 2% CPI goal is not reached.

BOJ’s Kuroda today also commented that Japan’s economy is expanding moderately and is also expected to expand moderately in the days ahead. BOJ will maintain QQE with YCC as long as needed to achieve 2% CPI target in a stable manner with necessary monetary policy adjustments.

China (SSE) closed around 3383, up by almost 0.26%, but well off the low around 3359 made earlier in the session. There was some report that ahead of party congress, China’s security regulator wants stability in the stock market after a significant rally. Chinese state run banks/funds has sold some blue chip cos yesterday in a bid to control the run-a-way market; previously they have given support to the market after S&P downgrade.

But upbeat projection of 2017 GDP by China officials as a result of some modification in calculation methodology may have also limit any damage to the China market today. PBOC today fixed mid-point of USDCNY at 6.6273 vs 6.6493, a little lower with neutral OMO. Yuan stability is vital for FPIS in China.

Hong-Kong (HKG-33) stock future is now trading around 28460, up by 0.50% and is basically affecting the regional market sentiment today in a volatile day of trading, swung between gains & loses, supported by techs/internet stocks (Tencent & Apple related stocks), while dragged by China based banks & financials and insurance cos. Overall, tepid China golden holiday spending may be also affecting the market sentiment for both HK & mainland China ahead of key policy speeches by the HK CEO on day after tomorrow.

Meanwhile, Crude Oil (WTI) is now trading around 49.75, up by almost 0.35% on overnight OPEC jawboning that “more need to be done to tackle the oversupply in the global oil market”. OPEC-NOPEC will meet on 30^th Nov and they may extend the production cut agreement beyond March’18 with deeper cut, if necessary (with more members). Technically, 49.00 is a good support for the WTI now.

Gold is also up by around 0.45%, now almost at 1290 on renewed safe haven demands amid NK missile tensions & Trump’s rhetoric; technically it will gain more momentum above 1290 zone for 1320-1360 and 1260 is now a good support for the yellow metal.

EU Stock Slips On Higher EUR & Lingering Concern About Catalan Independence

EU market today slips marginally lower in Stoxx-600, almost down by 0.12% on higher EUR and lingering concern about Catalan “independence” declaration; DAX-30 is down by almost 0.45%, CAC-40 edged down by around 0.20%, while FTSE-100 is up by 0.24% and IBEX-35 plunged by almost 1.15%.

Overall, EU market today was dragged by utilities, health care, while supported by consumer goods & services related stocks. IBEX-35 (Spain) slumped today after news that Catalan Prez is scheduled to hold a “historic” presser shortly; it’s also being dragged by Catalonia based banks & financials on political uncertainty like Brexit.

After all, Catalonia is an important part of Spanish economy contributing significantly to the overall economic activity/GDP of Spain; thus market can’t ignore this issue as a mere “local” event as such ant-establishment movement can spread to other EU areas also.

After yesterday’s hawkish jawboning by ECB, EUR got further boost today on upbeat German trade data and a strong EUR is not good for the export heavy EU market.

UK market (FTSE-100) has gained today on strength of miners after an upbeat IIP data coupled with a weak dollar, favourable for metals (Gold/Copper). Although, GBPUSD gained today, it has not affected export heavy FTSE-100 in a big way. UK market today was also supported by banks & financials on rate hike optimism and consumer goods related stocks.

BAE lost 0.2% on news of layoffs for around 2000 UK jobs as a plan of its cost cutting measures to combat recession like situation in the UK defence sector and also to certain other elite customers (countries like Qatar/Saudi Arabia).