Tuesday, 26 December 2017

Nifty Set To Consolidate Amid Holiday Thinned Mixed Global Cues

Market Mantra: 26/12/2017 (09:00)

SGX-NF: 10500 (-5)

For the Day: updated:13;50

For 26/12/2017: Dec-Fut

Key support for NF: 10490/10465-10425/10375

Key resistance for NF: 10525/10550-10600/10640

Key support for BNF: 25600/25400-25200/24950

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

Trading Idea (Positional):

Technically, Nifty Fut-Dec (NF) has to sustain over 10550 area for further rally towards 10600/10640- 10695 & 10745-10795 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10525 area, NF may fall towards 10490/10465-10425/10375 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 25725-25675 area, BNF may fall towards 25600/25400-25200/24950 & 24850-24700 area in the near term (under bear case scenario).

As par early SGX indication, Indian market (Nifty Fut-Dec/India-50) may open around 10500, almost flat on mixed Global/Asian cues amid holiday thinned trading. US market slips on Friday weekend as the passage of US tax reform bill & a temporary extension of the debt limit may have been already discounted by the market.

DJ-30 edged down by around 0.10%, S&P-500 closed almost unchanged around 2683, while NQ-100 edged down by almost 0.07% ahead of long X-mas holidays. US bond yields edged up to 2.486% from 2.483% on concern of higher tax/fiscal deficits after implementation of corp & personal tax cuts and as bond yield rose, utilities getting weaker, dragging the index on the perception of “bond proxies”.

US index future (SPX-500) is now trading around 2686, almost unchanged on mixed Asian/Global cues. Technically SPX-500 now has to sustain above 2710-2720 area for any further “Santa Rally”; otherwise it will come down and sustaining below 2670, will fall more.

Overall, as 2017 bull year is ending, as par latest data, investors have withdrawn almost $14.5 bln from equity market (MF/ETF) last week, the biggest weekly outflow since Brexit. At around 2697 (recent lifetime high), TTM PE for S&P-500 is around 25.38 on reported Q3 EPS at 106.27, which may be extremely stretched, considering the average historical valuation of around 18. The higher PE may be a reflection of US corp tax cut optimism on corp earnings in 2018-19.

On Friday weekend, EU market edged down 0.01% on Stoxx-600, primarily driven by plunge in Spain (IBEX-35) by around 1.2% on renewed Catalan tensions after the pro-independence coalition parties won the regional election cumulatively, but overall situation is calm as despite win, pro-independence coalition parties may not be able to form a Govt in reality as several separatists leaders are on exile and can’t attend the Parliament to stake claim.

DAX-30 fell 0.30%, CAC-40 slipped 0.40% despite an upbeat French GDP (+0.6%) & consumer spending (+2.2%).

But, overall political situation in Catalonia is now fluid as the debate of independence will heats up again after comfortable win by pro-independence coalition parties (70 out of 135) in a huge setback for Madrid. Rajoy’s party (Spanish PM) got only 3 seats in a major debacle; Barcelona (Catalonia) based banks dragged the Spanish market most on Friday.

But overall, EUR was resilient despite these Catalan tensions & only edged down and helped to contain any meaningful damages to the market. Despite EU political jitters (Catalonia/German coalition Govt delays/Italy election), EUR is acting as a “Teflon coated” currency as EU policy makers are now debating about rate hikes/normalization in 2019 after QE will end fully by Dec’18. 

Although, ECB is slated to purchase QE bond (AP) of 60 bln EUR/pm to 30 bln EUR/pm from Jan’18 to Sep’18, market is expecting that ECB will eventually do a short taper from Oct-Dec’18 @20/10/5 bln EUR and close the AP completely by Dec’18 and thereafter will gradually hike rate/normalize its extraordinary accommodative/loose monetary policy from H2CY19, depending upon the actual Fed stance & EZ economic conditions/core inflation.

FTSE-100 edged down by almost 0.20% from the record high, dragged by commodity, banks & financials (Spanish/Catalan tensions) and industrials, while helped by techs, consumers/retails (Christmas shopping) & utility related shares; GBP closed almost flat amid ongoing UK political & Brexit squabbling after a brief small intra rally on an upbeat Q3 UK GDP (+1.7%). IMF has downgraded UK’s 2017-18 GDP to 1.6-1.5% on Brexit uncertainty and any hard Brexit notion.

Asian stocks are also trading mixed today amid holiday thinned trading week, with Australia & Hong-Kong closed today for “Boxing Day” holiday along with almost all the other EU markets & Canada; only US will open today.

Japan (Nikkei-225) edged down by 0.20% from its 26 yrs high dragged by techs, auto & retailers; USDJPY is almost flat after an encouraging JP core CPI (Nov) at 0.9% vs est/prior 0.8% (YOY). Although BOJ Gov (Kuroda) was very optimistic today about JP economic prospect & current conditions, he sees wage growth more sluggish than previously as JP cos are against price rising for concern of losing business. Thus overall comments from Kuroda today may be on the dovish side as usual.

China (SSE) jumped by almost 0.78% and well off the earlier day loses/low, but both the blue-chip index and China Next (start up) dipped today amid tight market liquidity on HK holiday; notably 1-M SIBOR rate soared to 4.9277% today, the highest level since April’15.

As par recently concluded Govt policy discussion forums, China may set its 2018 money growth at all time low around 9% to contain excessive leveraging in the economy.

Back to home, Indian market (Nifty Fut-Dec/India-50) is now trading around 10505, almost flat after making a day high & low of 10515-10497 so far in an extremely range bound day till now as most of the institutions & HNI desks are in holiday mood today/this week. Nifty-50 (Spot) made another life time high today (10515).

As 2017 is ending in an upbeat note after providing good trading/investing opportunities for both bears & bulls, all focus will be now on upcoming union budget and any extraordinary rural economy facie fiscal stimulus & fiscal deficit thereof, Q3/Q4 earnings, higher core inflation trajectory/oil prices/Indian bond yields, speed of NPA/NPL resolution, PSBS recaps and resumption of meaningful private capex & GDP.

Also, earnings recovery, series of state elections in 2018 and an early general election on 2019 and any RBI rate hikes apart from various geo-political jitters & global QT will be in focus. At present run rate & various economic conditions, Nifty EPS for FY-18 may finally come around 418 and market is expecting a 20% growth in FY-19 for a Nifty EPS of around 500, which may be a tall order, considering higher Indian bond yields (funding costs), higher oil (RM cost), higher INR (negative for export savvy Nifty index).

Also, DeMo & GST blues & spillovers may affect the overall earnings trajectory and thus considering the actual current trend, a Nifty EPS of around 450 looks reasonable for FY-19, provided the FY-18 EPS indeed come around 418; present Nifty EPS for Q2FY18 (TTM) is reported at around 391, consistently below the 400 mark for the last few years/QTRS.

At an average FWD PE of 20 & FY-19 projected EPS at 450, the wholesale price sticker for Nifty should be around 9000 (450*20) against MRP of 10500 as of now. Severe criticism by CAG over India’s fiscal accounting policies and inconsistencies may be an early red flag considering overall combined fiscal deficit & higher Govt debt; thus Indian 10YGSEC bond yields at 7.30% are not so much optimistic about prospect of Indian economy in 2018, quite divergently from the EQ market.

But, bond market may be an early & true reflection of the state of the economy rather than stock market; Indian bond yield may soar to 7.50% by next few months as par current trend & economic conditions.



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