Market Wrap: 01/12/2017 (17:00)
NSE-NF (Dec):10144 (-135; -1.31%)
(TTM PE: 25.809; Abv 2-SD of 25; TTM Q1FY18 EPS: 391;
NS: 10122; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)
NSE-BNF (Nov):25256 (-193; -0.76%)
(TTM PE: 29.05; Near 3-SD of 30; TTM Q1FY18 EPS:
867; BNS: 25192; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)
For 04/12/2017:
Key support for NF: 10120/10090-10070/10015
Key resistance for NF: 10165/10185-10225/10300
Key support for BNF: 25200/25100-24950/24700
Key resistance for BNF:
25600/25750-25875/26050
Trading Idea (Positional):
Technically, Nifty Fut-Dec (NF) has to sustain over 10185 area for further
rally towards 10225-10300 & 10350-10425 zone in the short term (under
bullish case scenario).
On the flip side, sustaining below 10165 area, NF may fall towards 10120-10090/10070
& 10015-9970 zone in the short term (under bear case scenario).
Technically, Bank Nifty-Fut (BNF/BNS) has to sustain over 25600 area for
further rally towards 25750-25875 & 26050-26200 zone in the near term
(under bullish case scenario).
On the flip side, sustaining below 25550 area, BNF may fall towards 25400-25200
& 24950-24700 area in the near term (under bear case scenario).
Indian market (Nifty Fut/India-50) today (1st Dec) today closed around 10144, plunged by almost 135 points (-1.31%)
on muted global cues despite immense growth optimism. Market may be also
worried about fiscal slippages and any adverse (below expected) election
outcome from GJ this time.
Today Indian market opened around 10289,
edged up on mixed global/Asian cues amid ongoing US Tax Reform squabbling and
an upbeat Indian GDP released yesterday. But it soon came into selling pressure
despite an earlier stable Asian cues due to various domestic worries &
stretched valuations.
Eventually Nifty plunged further after opening slide in
EU/German market on higher EUR, tech & auto sell off, US tax reform
suspense & political squabbling from Germany to US.
Various Domestic
Headwinds Persist:
Indian market came into additional selling pressure on concern
of higher oil; Brent now on the verge of breaking $65 after 9-months extension
of OPEC-NOPEC deal and overall dilemma about fiscal prudence & fiscal
spending; few days ago, Govt/FM has also hinted that FY-19 budget may be heavy
on rural & infra spending. This is normal for any Govt, preparing for 2019
general election.
Although auto sales for Nov’17 looks mixed at a glance, it came
on the back of low base last year due to Nov’16 DeMo.
Indian MFG PMI for Nov also came as upbeat at 52.6 vs est 51;
prior: 50.3; PMI soared at fastest rate in the last 13 months (Oct’16) after
DeMo & GST blues on surge in new orders & lower tax rates (GST recalibrations
for a number of daily items).
As par Markit, “it also indicates stringer underlying demand
conditions and factory employment rose in November with manufacturers raising
their payroll numbers at the sharpest rate since Sep’12”.
As par Markit: “At the same time, inflationary pressure also
increased with inputs costs rising to the highest level since April. Chemicals,
steel and petroleum prices saw an uptick while overall input prices rose at a
stronger rate. According to anecdotal evidence, firms were able to completely
pass on the higher cost to customers, the report said. Manufacturers, however,
attempted to replenish their stocks by purchasing greater quantities of raw
materials and semi-finished items in November”.
Thus, we may see higher core inflation in the coming months on
higher input costs & higher oil being passed by the manufacturers.
A dual combination of higher growth & higher inflation may
compel RBI to go for “hawkish hold” not only on 6th Dec, but also
for the entire 2018, depending on the stance of G-3 central banks (Fed/ECB/BOJ);
if Fed hikes even 2 times in 2018 followed by another 2 in 2019 to make its
terminal rate at 2.50% from present 1.50% (assuming a Dec’17 hike of 0.25%),
then RBI may have to also hike in 2018-19 to keep USDINR bond yield differential
attractive enough for the FPIS to invest in India growth story.
Market may be also worried after sudden bulk deposit rate hikes
by big PSBS like SBI, PNB. BOB, which may be an indication that DeMo led
liquidity in the banking system now on the downwards amid ongoing “surgical
strike against black money” by the Govt.
This surge in DeMo led liquidity of previously idle money
(household savings) & so called black money to the stock market/MF-SIP etc
are one of the primary reasons for the huge rally in the Indian stock market
starting just few months after Nov’16 DeMo, coinciding with Trumpism.
Valuations Still Very
Expensive:
Another factor may be that Nifty EPS need to reflect the overall
growth optimism in the economy backed by structural reforms & political
stability; despite all the so called “green shoots”, Nifty EPS is not able to
cross the 400 barrier; for the last three years its hovering around 366 of
average and at present Q2FY18 TTM EPS is now around 391.
The present trend indicates that FY-18 EPS may come around 418
under normal conditions with no further GST & DeMo spillover effect,
whereas market has previously assumed that it will some around 485-500; at
10100 level, Nifty TTM PE is still hovering around 26, much more expensive that
China/HK/Japan (around 15) or even EU/US (around 20).
Combination Of Higher
USD, Higher Oil, Higher Inflation, & Higher Fiscal Deficits May Not Be
Good:
Thus FPIS may be now on selling spree (profit booking after
entering DeMo led plunge in the market last year) from an expensive market like
India and investing in China/Japan/EU/US growth stories having much more
cheaper valuation apart from attraction of higher bond yields there on global
QT.
Today Nifty was helped by Kotak Bank, Bharti Infratel, Maruti,
M&M & Ambuja Cements by only 3 points, while it was dragged by RIL (P/L
is secondary, while Country & consumer satisfaction is primacy), Infy,
VEDL, SBI, IOC, HDFC, IBULLS HSGFIN, Adani Ports, Eicher Motors & Tata
Motors by almost 57 points cumulatively (top ten draggers).
Overall, Indian market dragged by almost all the sectors today
as selling was quite broad based & solid; but banks & financials, auto,
techs, media, FMCG, pharma, reality, energies & consumption stocks pulled
it most; selling was quite sharp in the PSBS also; eventually Nifty closed the
week almost 2.5% lower.
Technicals Not Favourable
As NF Is Making Lower Highs & Lower Lows; Watch 10070 As Positional
Support:
As par text book EW wave, NF is now in the corrective A- wave
and target of that may be around 10110-10070; subsequent EW-B may take it
around 10245-10290 and then EW-C may correct further to around 9710 (if
sustained below 10070 area).
US tax reform & Trump’s Russian link outcome, RBI stance, GJ
election, NPA/IBC/NCLT resolution & PSBS recaps mechanism and budget “Trial
Balloons” may be some of the near term triggers of the market.
In any way, NF has to sustain over 10575-10605 area for any Q4
rally towards 10860-10950; but that looks tough at this moment.
SGX-NF
BNF
USDJPY
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