Nifty Looks Fragile On Muted Global Cues & “Disappointment” Over S&P Refusal To Upgrade India

Market Mantra: 27/11/2017 (09:00)

SGX-NF: 10375 (-42)

For the Day: updated: 12:25

Key support for NF: 10340-10290

Key resistance for NF: 10425-10460

Key support for BNF: 25700/25600-25450

Key resistance for BNF: 25875/26000-26100

Trading Idea (Positional):

Technically, Nifty Fut-Nov (NF) has to sustain over 10460 area for further rally towards 10500-10540 & 10585-10675 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10440-10425 area, NF may fall towards 10340-10290 & 10190-10150 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 26000 area for further rally towards 26100-26325 & 26400-26675 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25950-25875 area, BNF may fall towards 25700/25600-25450 & 25200-24950 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Nov) may open around 10375, almost 42 points gap-down and back to square one to the pre-S&P hype level on Friday amid muted Global/Asian cues and disappointment over S&P refusal to upgrade India. 

Although, on Friday weekend, US market edged up and made another milestone high on Black Friday sales & techs optimism, China again played a spoil-shot today in the Asian session on lingering credit tightening concern & muted data (Oct Industrial Profits & ZEW leading indicators). China now seems to be diverging from story of so called “global synchronized Goldilocks stock market rally”.

China is today down over 0.80% & SSE falls to lowest since Aug’17 and now technically looks more vulnerable if China-A-50 (Fut:13233) fall & sustains below 13150; then expect more downfall towards 13000-12690 zone in the short term.

USD edged down after reports that due to “poor marketing” effort by Cohn & Mnuchin, US tax reform/cut plan among US public, US Senate is not under great pressure to pass the same in a hurry; at least six RNC senators are still against it and thus prospect of passage of the same looks risky as RNC/Trump now enjoys only two seat majority in the US Senate. 

Although, preliminary Black Friday & Thanksgiving US sales looks healthy at around $14.5 bln (including expectation of $6.6. bln Cyber Monday sales), which is almost 17.9% growth (YOY), market is skeptical about the credibility of this sales data & its eventual effect on the US retail sales.

All eyes will be now on US GDP, PCE, tax reform, Yellen’s testimony and Powell speech apart from host of Fed speeches this week, before Fed goes out for blackout period for its policy decision on 13^th Dec; although market is super confident about the Dec’17 rate hike by almost 95%, it’s much more less confident on 2018 rate hikes (only 45% for 2 rate hikes).

EUR is almost flat amid German political squabbling as the drama still continues and we may see some definitive move on 30^th Nov, when German Prez meets both Merkel & Schulz to forge a “grand alliance” again. But, rock solid German data (IFO & Mfg PMI) is supporting the currency coupled with robustness of German political system and confidence that Merkel will eventually lead Germany either by forming a coalition Govt or by calling a fresh election.

GBP is under pressure on renewed skepticism about Brexit negotiations after EU gives UK ultimatum of few days to “improve” its Brexit offer and address the Irish border issues meaningfully.

Overnight on Friday weekend, US market inched up in a half day of holiday trading on upbeat online sales data(retailers), earnings and techs & materials optimism; DJ-30 edged up by almost 0.14%, S&P-500 gained by 0.21% and closed around 2602, while NQ-100 added 0.32% boosted by Amazon, FB & Broadcom (better M&A offer buzz by Qualcomm); but telecom lagged behind. Overall, 7 out of 11 sectors were in green. A muted US PMI data may have also affected the market sentiment.

US stock future (SPX-500) is now trading 2598, edged down by almost 0.10% on muted Asian cues; technically, one can watch 2589-2610 zone for any near term support & resistance.

EU market is also set to open lower on higher EUR & German political deadlock; overnight on Friday weekend, EU market closed 0.70% higher in Stoxx-600 on robust German economic prospect & hopes for a “grand coalition” Govt. DAX-30 rose 0.4% on upbeat automakers (VG) & chemical makers (BASF), but dragged by exporters to some extent (higher EUR); CAC-40 also gained 0.2%. 

Overall, EU market was helped by techs, banks & financials (favourable prospect of Italy NPA sell rules by EU parliament) and basic materials, while dragged by healthcare & energies.

FTSE-100 slipped by 0.10% on retailers (discount sales on Black Friday may distort earnings) & exporters (higher GBP), techs, healthcare, while helped by financials & energies (higher oil); online betting giant Paddy Power surged by over 3% on M&A buzz.

Indian Market May Focus On Earnings Recovery, Oil, Macros & GJ Election:

Back to home, Indian market (Nifty/India-50) is now trading around 10365, down by almost 0.45% and hovering around the day low of 10356 so far ahead of EU market opening on muted Asian/China cues and S&P disappointment.

Looking ahead Indian market may focus on GDP for Q2FY18, which is poised to come as 6.4% vs 5.7% (QOQ) as market is expecting sizable economic recovery after GST disruptions. Although, this time GDP number is expected to come as ”upbeat”  ahead of GJ elections, still various high frequencies data in Oct-Nov may be indicating some slowdown after Sep festival season boost.

S&P has made some interesting observations about trajectory of Indian economy:

·         No doubt that there has been a fairly good reform momentum in India. Once GST kicks in, it should help the fiscal glide path of lower fiscal deficit proceeds, we will re-assess our position

·         Track record on reducing fisc deficit has not been good; Consolidated deficit have averaged above 8% in past for India; not encouraging

·         India's rating is high, & we are not expecting a default at this level; our thinking is that medium growth outlook is good

·         Watching closely if recent quarters of slower growth are just teething problems related to DeMo & GST or we are seeing a broad slowdown

·         Fiscal position for India is a risks for our rating; risks for India are weaker consumption, higher oil prices, banking problems; bank recap should help that; lending has not only been a supply issue, but also a weakness on demand side

·         India issues most of its debt domestically, no exchange rate risk there. Broadly bank recap plan looks good

·         we look at deficits on a consolidated basis, with states and centre together & consolidated deficit is still high

·         Our criterion for rating is same for all countries; Fiscal story for India is weak

·         the external story for India is looking good; current account deficit good, foreign exchange reserves strong

·         India's fiscal deficit remains sizeable

·         Growth story is good but seen a wobbly few quarters wrt growth & teething problems with reforms

More: S&P Rating Highlights:

·         Est GDP Per Capita To Close At $2,000 In 2017; Level Lowest Of All Invst-grade Sovereigns. Expect Real GDP To Average 7.6% Over 2017-2020 (6.5% In Per Capita Terms)

·         Positive Reforms Include Bankruptcy Code & NPA Resolution Framework. Positive Reforms Include PSU Bank Recap Plan, Energy Reforms

·         DeMo & GST Led to Some Quarterly Cooling in India’s high Growth. Medium-term Outlook Favourable On Private Consumption, Public Infra Investment

·         Expect BJP/NDA Coalition To Further Consolidate Power In State Elections

·         India’s Strengths Are Balanced By Low Per Capita Income & High Govt Debt

·         Current Ratings Reflect India’s Improving Monetary Credibility, India’s Strong Democratic Institutions & Free Press Promote Policy Stability

·         Downward Pressure On Ratings If Fiscal Deficit Rises Significantly

·         Downward Pressure On Rating If GDP Growth Disappoints. Downward Pressure On Ratings If Political Will For Reforms Loses Momentum

·         Stable Outlook Reflects Belief That India Will Maintain Sound External Accounts. Stable Outlook Reflects Belief That Fiscal Deficit Will Stay Broadly Inline With Our Expectations

·         Stable Outlook Reflects Growth Will Remain Strong Over Next Two Years

·         Affirm A-3 SHORT-TERM Sovereign Credit Rating On India

·         Low Per Capita Income, Sizeable Fisc Deficit, High Govt Debt Burden Detract From India’s Credit Profile

·         Expect Continues Rise In Foreign Exchange Reserves

·         Despite 2 Weak Quarters, Expect Indian Economy To Grow Robustly In 2018-20

·         Maintains status quo, keeps India's rating unchanged at BBB-

·         Country's Low Per Capita Income & High Government Debt are key Risks. Over Next 2 Years GDP Growth Will Remain Strong.

·         Problems at State Level Will Add 3% To Consolidate Deficit. Country's Contingent Fiscal Risks Are Limited

·         External Position Remains a Credit Strength; External Debt To Average Modest 8.4% Over 2017-20

·         Fiscal Consolidation Will Remain Difficult.

Market may be in dilemma over fiscal prudence for the sake of rating & fiscal spending for the sake of growth to dig out the economy from its deepest slumber since 2014.

SGX-NF

SPX-500