Friday, 29 December 2017

Nifty Edged Down On Fiscal & LTCG Worries And Year-End Portfolio Rejig

Market Wrap: 28/12/2017 (17:00)

NSE-NF (Jan):10512 (-21; -0.20%) 

(TTM PE: 26.80; Abv 2-SD of 25; TTM Q1FY18 EPS: 391; NS: 10478; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):25498 (-61; -0.24%) 

(TTM PE: 29.40; Near 3-SD of 30; TTM Q1FY18 EPS: 867; BNS: 25490; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 29/12/2017: Jan-Fut

Key support for NF: 10470/10430-10400/10350

Key resistance for NF: 10555/10575-10610/10650

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

Key resistance for BNF: 25600/25775-25875/26050

Trading Idea (Positional):

Technically, Nifty Fut-Dec (NF)/NS has to sustain over 10575 area for further rally towards 10610/10650-10695 & 10745-10795 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10555 area, NF may fall towards 10470/10430-10400/10350 & 10285-10190 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 25725-25600 area, BNF may fall towards 25400/25200-24950 & 24800-24575 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Jan/India-50) today (28th Dec) closed around 10512, slips by almost 21 points (-0.20%) and well off the session high of 10569 on fiscal & LTCG (long term capital gain tax) worries despite holiday thinned mixed Global/Asian cues and lower USD, beneficial for the overall economy.

Indian market today opened around 10532 on mixedGlobal/Asian cues & edged up after Govt formally declared about additional FY-18 borrowing for Rs.0.50 tln yesterday, slightly above market estimates of Rs.0.25 tln. Indian 10YGESC bond yield today surged to almost 7.39% on probable higher FY-18 fiscal deficit of around 3.50% (estimates varies from 3.35-3.70%).

Apart from dilemma of fiscal slippages & fiscal stimulus, populist budget, higher Oil & higher inflation, market may be also concerned about renewed debate LTCG definition in the forthcoming FY-19 budget; LTCG was deferred last year after DeMo led market disruption. But Govt may go ahead this year as market is hovering around life time high with no major risks of disruptions/outflows and Govt revenue is also stretched.

Govt may change the definition of LTCG from present one year holding to three years or scrap the distinction between STCG & LTCG (both @15%) as a “meaningful tax contribution by the capital market towards growth of the country”. By increasing LTCG period, Govt may also encourage long term investments rather than short term trading/derivatives.

Overall, higher bond yields may continue haunt the Indian market as 10YGSEC yield is seen around 7.50% in the days ahead; bond market correctly anticipates higher fiscal deficit despite Moody’s rating upgrade optimism. A higher bond yield may translate into higher borrowing costs for the Indian corporates delaying the much awaited earnings recovery.

Such higher bond yields may be a reminder of Greece few years ago, borrowing heavily to support Govt capex/infra & huge federal workforce even at the cost of higher borrowings (bond yields).

A lower bond prices (higher bond yields) may be also bad for the Indian banks/PSBS on MTM loss for the bond portfolio as almost 50% of EBITDA came from this A/C. PSBS suffered most despite recaps narrative.

Market may be also worried about new SEBI proposal of 10% cross-shareholding caps in MF and an immediate loan defaulter disclosure by the listed cos.

MDAG Came To The Rescue Of ADAG:

After market hours, R-COM confirms that R-JIO is bailing out it from the debt/NPA mess through buy out of all the core telecom assets; although this is in expected line, NCLT stance here might be interesting as it’s equivalent to back door entry of the defaulters (connected entity between younger & elder brother).

But, bailing out of R-COM (ADAG) by R-JIO (MDAG) may be not good for RIL/R-JIO’s B/S, already heavy with existing telecom & energy debt; thus at least we may negative reaction on RIL for the short term & being an index heavy weight, RIL may also drag the market.

Market is expecting improvement in GDP, earnings recovery, NPA resolution, GST recalibrations as some of the tailwinds while fiscal slippages, higher bond yields, populist budget, four state elections in non-BJP rules states, a hawkish RBI and negative global cues/geo-political jitters as some of the headwinds for Q4FY18.

Today Nifty was mostly supported by HDFC Bank, VEDL, ICICI Bank, Hindalco, UPL, Tata Steel, TCS, DRL, M&M and IBULLS HSG by around 17 points altogether.

Nifty was dragged mostly by IOC, SBI, HDFC, Axis Bank, Tata Motors, Adani Ports, Eicher Motors, Bajaj Fin, Hero Motors & Kotak Bank by almost 22 points cumulatively.

Overall, Indian market was today helped by metals (higher commodity/copper prices), reality & selected private banks, while dragged by PSBS, financials, auto, selected techs, media, healthcare/pharma, energies/OMC (higher Oil) & consumption stocks to some extent, but Nifty closed the Dec exp by 2.5% higher after slim win by BJP in GJ & telecom debt resolution (R-COM) optimism and higher oil & fiscal worries with a hawkish hold by RBI.




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