Market Wrap: 23/10/2017 (17:00)

NSE-NF (Oct):10196 (+50; +0.49%)

(TTM PE: 26.45; Abv 2-SD of 25; TTM Q1FY18 EPS: 385; NS: 10184; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24167 (+194; +0.81%)

(TTM PE: 27.53; Abv 2-SD of 25; TTM Q1FY18 EPS: 878; BNS: 24167; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 24/10/2017:

Key support for NF: 10150-10100

Key resistance for NF: 10225-10275

Key support for BNF: 24000-23850

Key resistance for BNF: 24200-24400

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10225 area for further rally towards 10275 -10325 & 10380-10455 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10205 area, NF may fall towards 10150-10100 & 10040 -9975 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24200 area for further rally towards 24400-24600 & 24875-25050 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24150 area, BNF may fall towards 24000-23850 & 23600-23400 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10196, surged by almost 50 points (+0.49%) on positive EU cues as EUR gone lower for simmering Catalan tensions coupled with renewed telecom optimism after R-Jio (RIL) has revised its introductory lower charges by around 15-20% higher across the board.

R-Jio was responsible for the Indian telecom disruption by its superior technology & lower prices/freebies and market is optimistic that after R-Jio’s tariff increase, other incumbents will also be able to increase their prices. Both RIL & Bharti Airtel rallied today to their fresh life time high and surged by around 3.28% & 4.98%, thus helped the market immensely.

Nifty-Fut (Oct) today made an opening session high of 10227 & midday low of around 10120. Today Indian market opened in a positive tone around 10175 (+31 points) amid positive global cues as USD goes higher on hopes of a hawkish Fed leadership, renewed optimism about US tax reform on preliminary progress in US legislation coupled with a “monster win” by Abe in the JP election (negative for Yen on accommodative BOJ monetary policy).A higher USD is good for export savvy Asian & EU market in general.

But soon after opening in positive tone and made the day high of 10227, Indian market was affected by intense selling and eventually made the day low of 10120 quite swiftly; muted China property prices data, concern of housing bubble there and subsequent fall in HK market may have also affected the overall regional/Indian market sentiment today.

Market may be also concerned about additional banking NPA to the tune of Rs.0.40 tln after Axis Bank’s NPL reporting involving 9 common cos in metals & power sector and RBI’s divergence issue with Bank’s reported GNPA figure in FY-17 B/S.

Also, as par some reports, due to lower growth & revenue for GST & DeMo blues, Govt’s fiscal health may not be good enough for a fresh fiscal stimulus and on the contrary, Govt may be forced to cut its capex (FY-18) to stick with the fiscal discipline (3.2% fiscal deficit for FY-18) narrative.

Overall, stretched valuations, mixed earnings so far in Q2, combination of higher USD & higher oil may be affecting the Indian market sentiment despite supportive global cues. Nifty EPS has to support the expensive market valuation irrespective of any other narratives!! Distribution is clearly happening in mid-caps & banks, which may be followed by Nifty later on.

On Thursday (19/10/2017), Indian market (Nifty Fut/Ondia-50) plunged by almost 130 points in a brief “Diwali Muharat” evening session on muted global cues amid “ghost of the 1987 crash” & PBOC warning of a “Minsky Moment” & concern for domestic earnings, stretched valuation, surging NPA and closed around 10146, down by almost 0.90%.

High GST compliance cost due to its complex structure may be discouraging SMES/small traders to comply with the new taxation system as in that scenario, overall viability of their business models may come into question. This, along with DeMo blues and formalization of the economy may be making life difficult for the SMES/small traders and thus we may see incremental unemployment pressure on the overall economy.

Although, Govt is trying to rejig the GST tax slabs after considering the overall impact on tax revenues, it may be too late & too little.

Today Nifty was supported by RIL, HDFC Bank, ICICI Bank, Bharti Airtel, Infy, Ultratech Cement, SBI, Maruti, Adani Ports & HCL Tech by around 101 points cumulatively, while it was dragged by HDFC, IOC, ITC, Bharti Infratel, Axis Bank, Kotak Bank, Tata Motors, Ibulls Hsg; Yes Bank & Eicher motors by almost 62 points altogether.

Overall, market was helped by selected private banks & PSBS on recap talks by the Govt, tweaking of IBC provisions to help home buyers, PSUS on Bharat-II ETF buzz, property developers/real estates, telecoms, energies while it was dragged by FMCG, selected pharma, auto & some private banks on concerns of RBI-reported NPA divergence issue.

RBI minutes released last week also shows a clear hawkish tilt for inflation and in that scenario, any Dec’17 rate cut probability may be very low, irrespective of any other narratives.

Asia-Pacificmarkets today were mixed on higher USD amid optimism about Abenomics after landslide victory by Abe in JP election yesterday, coupled with hopes of US tax reform & policy continuity by Fed’s next leadership in the form of Powell & Taylor. But, muted China property prices data & ongoing Catalan tensions has dampened the sentiment to some extent also; except Japan, almost all the major Asia-Pacific market today closed in negative to flat despite upbeat US cues on Friday weekend.

Australia (ASX-200) closed around 5894, down by almost 0.20% from early positive on subdued China property prices data; it was dragged by industrial property developers/real estates, banks & financials utilities, gold miners, while helped by telecoms, energies & mixed metals/miners.

AUDUSD is now trading around 0.78079, almost flat on concern about China housing market coupled with AU economic optimism and some stability in the NZ/regional political space.

Japan (Nikkei-225) closed around 21697, soared by almost 1.11% amid a “monster win” by Abe on Sunday’s snap poll & some fall in Yen as expected; as par reports, Abe’s coalition party won 309-312 seats out of 465 to secure a 2/3^rd majority. Overall political stability and increasing economic growth, tighter job market & earnings and FPIS inflow (relatively cheap valuation) is supporting the JP equity for the last few months.

A lower Yen is helpful for export savvy JP economy & stock market; USDJPY has gained almost 7.5% on the last three months and 14% in the last one year; a convincing Abe win should extend basic principles & life span of Abenomics, be it in different forms.

The landslide victory by Abe will ensure his effort to reform JP’s Pacifist constitutional reform, which prohibits the nation for any overseas deployment of its military forces other than peace keeping operations. This rule was imposed on JP during WW-II by US 72 yrs ago to ensure that JP will not maintain military forces and other war potential except for its self defense.

Thus, Abe will now try to stimulate the JP economy through incremental defense spending in the wake of NK attack rhetoric by ratifying JP constitution and US may be the biggest beneficiary of that. JP market was today helped by exporters, manufacturing, textiles, transportation units & automobiles. An upbeat nationwide department store sales for Sep at 4.4% vs 2% prior and has also boosted the overall market sentiment today along with solid leading index for Aug (final reading at 107.2).

China (SSE) closed around 3381, edged up by almost 0.10% amid concern of “Minsky Moments” and further policy guidance by the ongoing China party conclave. Overall market mood may be also affected by muted China home prices data for Sep at +6.3% vs 8.3% prior (YOY) and concern for China housing bubble after sales dropped last week amid PBOC/Govt’s intensified war against leveraging; financials deleveraging is also gaining momentum to keep China as a stable economy.

PBOC today fixed the mid-point of USDCNY at 6.6205 vs 6.6092 with a net injection of 140 bln Yuan. Last Friday, China market sentiment was boosted a Govt plan for a free trade port at Shanghai and accelerating the construction a SEZ in Xiong; nearly all stocks rallied with Prefix “Shanghai” word (related stocks, which could benefit from such free port & SEZ).

Today, China market was supported by suspected state intervention, defensive consumer & healthcare stocks, while dragged by property developers/real estate (muted housing data), banks & financials (concern for subdued earnings). Overall sentiment was also gloomy after China’s Prez stressed that “housing was for living and not for trading” coupled with concern for a slowing China.

Hong-Kong stock future (HKG-33) closed around 28295, dragged by almost 0.50%, bucking the overall regional trend on muted China property prices data and overall housing bubble concern. Today HK market was dragged by China based automobiles, property developers, while it was supported by insurers, industrials/SEZ makers on news that Tesla will set up a plant.

Overall, market will focus on tomorrow last day of the China Party Congress and formation of a new Politburo committee, where out of 7 old members, 5 old members except Prez Xi & Premier Li is resigning and some new members including Xi’s secretary & Shanghai Party secretary may be inducted.

Meanwhile, Crude Oil (WTI) is trading around 52.05, up by almost 0.30% on OPEC jawboning about faster rebalancing and a sharp decline in Iraqi crude exports due to ongoing geo-political tensions in Kurdish region.

European Stocks Edged Up On Lower EUR Amid Simmering Catalan Tensions & Hopes For A Dovish QE Tapering:

EU stocks edged up today on lower EUR simmering tensions in Catalonia and increasing hot rhetorics between Madrid & Barcelona coupled with prospect of a dovish QE tapering signal by ECB this week.

Stoxx-600 closed around 0.16% higher; while DAX-30 edged up by almost 0.10%, CAC-40 has gained by almost 0.26%, FTSE-100 was almost unchanged and IBEX-35 plunged by around 0.64%.

Political standoff between Madrid & Barcelona has affected the overall EU market sentiment including Spain; after all Catalonia is a vital part of Spanish economy and the political uncertainty there may be a grim reminder of Brexit types of uncertainty for business classes. Also, political uncertainty and anti-establishment moves in Italy and Check Republic apart from Spain & Germany has affected the risk-on sentiment today across EU.

As par latest report, Catalan leaders will not follow the orders of Spanish Govt, but will only follow the “will of the people”; clearly Catalan CUP leaders are now in no mood to follow the Article-155 related orders of the Spanish Govt and the region may be heading for an inevitable election with lots of political & economical chaos due to their respective domestic compulsions. Catalonian based banks have dragged the Spain market most today.

Overall EU markets were dragged by banks & financials, consumer related stocks, while it was helped by exporters, airlines (Pension scheme agreement of Air-France), and insurers (analyst upgrade).

FTSE-100 was dragged by British Banks (Brexit & Catalan political uncertainty), Mediclinic, car dealership (muted earnings), while helped by engineering stocks (GKN on deleveraging news), healthcare stocks (Spire on rejection of full takeover offer form Mediclinic).

Overall, UK market may be plagued by weak earnings & a deluge of guidance/profit warning amid an environment of economic & political uncertainty (Brexit), which is affecting currency, imported inflation and real wage growth & finally consumption.