Nifty Edged Down On Concern For Fiscal Slippages & Hawkish RBI Minutes

Market Wrap: 22/12/2017 (17:00)

NSE-NF (Dec):10458 (-12; -0.12%)

(TTM PE: 26.70; Abv 2-SD of 25; TTM Q1FY18 EPS: 391; NS: 10440; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Nov):25610 (-53; -0.21%)

(TTM PE: 29.61; Near 3-SD of 30; TTM Q1FY18 EPS: 867; BNS: 25673; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 22/12/2017: Dec-Fut

Key support for NF: 10425/10390-10350/10300

Key resistance for NF: 10475/10495-10550/10580

Key support for BNF: 25400/25200-24950/24800

Key resistance for BNF: 25775/25875-26050/26200

Trading Idea (Positional):

Technically, Nifty Fut-Dec (NF) has to sustain over 10495 area for further rally towards 10535/10550-10580/10640 & 10695-10745 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10475 area, NF may fall towards 10425/10390-10350/10300 & 10250-10190 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25775 area for further rally towards 25875- 26050 & 26200-26325 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25725 area, BNF may fall towards 24300/25200-25100/24950 & 24800-24650 area in the near term (under bear case scenario).

Indian market (Nifty-Fut/India-50) today (21^st Dec) closed around 10458, edged down by almost 12 points (-0.12%) after making an opening session high of 10485 and mid-day low of 10443 in another day of consolidation amid holiday thinned trading volume on dilemma of fiscal slippages & higher rural capex by the Govt after slim poll victory in GJ and a hawkish RBI minutes pointing towards higher inflation trajectory and virtually no scope for any rate cut; in fact rate hike talks may come in the days ahead.

Overallglobal cues were mixed today:

After disappointing result from GJ, market may be apprehending that Govt may peruse the path of political populism instead of structural reform to woo rural vote bank ahead of series of state & general elections in 2018-19. Although Govt may spend additional capex for rural economy & infrastructure to support employment & wage growth after DeMo & GST blues, the combined fiscal math may be in disarray, which is already quite stressed.

Thus Indian 10YGSEC bond yields are soaring to almost 7.29% for the fifth consecutive months and may soon touch 7.50% level as both central & state Govt will scramble to raise funds to support Govt capex to dig out the economy from its deepest slump and generate enough employment opportunities for India’s huge pool of un/under employed workforce ahead of the crucial elections and market may be in dilemma for higher fiscal stimulus by the Govt and higher fiscal deficits along with surging Oil & inflation.

India may be now one of the rare politically stable economies among EMs, having so much “green shoots”, but offering such higher bond yields, consistently above 7%; a higher bond yield is not good for Indian corporates as eventual funding costs will be much higher compared to other EM/DM and even China. 

A higher bond yields may be also not good for the Banks contrary to global perception as Bank’s bond portfolio is bleeding (MTM loss) as almost 50% of EBITDA came from this bond portfolio. Banks are also in pressure due to RECAPS mechanism with so many caveats and ongoing NPA resolution squabbling through NCLT/IBC process.

The favourable 2G verdict yesterday may be now another political weapon in the hands of INC against BJP/Govt, which was perceived as a major scam denting overall credibility of the INC/UPA Govt in the past. Thus we may see a rejuvenated INC/RAGA in the coming days supported by better than expected result in GJ this time.

Today, Nifty was supported mostly by L&T, HDFC, Infy, HCL Tech & Tata Steel by almost 8 points altogether, while it was dragged by M&M, RIL, Maruti, Bajaj Fin & HUL by almost 9 points cumulatively.

Overall, today Indian market was supported by techs, media (favourable 2G verdict for Sun TV group & ongoing buzz for consolidation), metals, pharma, reality & PSBS to some extent, while it was dragged by private banks & financials, FMCG, consumption & energies to some extent.

OIL/WTI:

SGX-NF