Nifty Slips On Muted Global Cues Amid Plunge In Bonds And Concern For Fiscal Discipline & Stretched Valuation

Market Wrap: 30/01/2018 (17:00)

NSE-NF (Feb):11071 (-66; -0.60%)

(NS: 11050; Q2FY18 EPS: 391; Q2FY18 PE: 28.26; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):27349 (-160; -0.58%)

(BNS: 27269; Q2FY18 EPS: 867; Q2FY18 PE: 31.45; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 31/01/2018: Feb-Fut (Key Technical Levels)

Support for NF: 10095/10970*-10895/10870

Resistance for NF: 11065/11095-11155/11195*

Support for BNF: 27300/27100-26900/26700

Resistance for BNF: 27500/27650-27850/28075

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 11095 area for further rally towards 11155-11195 & 11235-11285 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 11065 area, NF may fall towards 10095/10070-10895/10870 & 10825-10725 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 27650 area for further rally towards 27750-27850 & 28075-28405 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 27600-27500 area, BNF may fall towards 27300-27100 & 26900-26700 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Feb/India-50) today (30^th Jan) closed around 11071, tumbled by almost 66 points (-0.66%) on muted global cues amid plunge in bonds (higher bond yields) coupled with domestic concern for fiscal slippages, higher oil & stretched valuation as highlighted in the economic survey; Nifty-Fut made an opening minutes high of 11121 and late day low of 11053.

There was some long unwinding (profit booking) ahead of Budget on concern for LTCGT (long term capital gain tax) & political populism, being the last full budget before the 2018-19 general election. As par reports & some opinion polls, BJP’s popularity is on the down side, especially in small towns & rural areas due to issues of unemployment, DeMo & GST and as par current trend, BJP may not get the 2/3^rd majority of its own in the 2019 election.

If GST spillover effect normalize in the coming months and result from the four big state elections are favourable, then BJP may go for an early general election by Dec’18; in that scenario, government may also present a full budget by Feb’18, but lack of any absolute majority in the Parliament may be also a source of constant political instability in the coming days.  

As par Former FM P. Chidambaram (INC): “EconomicSurvey18 is a confession that the Govt failed to tackle employment, education & agriculture related challenges; the opposition will come together in 2019 to form a grand coalition”.

As par Moody’s, which recently upgraded India after 14 years, also opined that government may report 3.5% fiscal deficit vs est of 3.2% in FY-18: Fiscal deficit may Expand If Oil Prices Stay Higher; Don't See External Vulnerabilities Impacting India; FDI Has Picked Up and Is Helping Provide Stability To Balance Of Payments; India in a Stronger Position To Deal With Higher Oil Prices; Expect Oil Prices To Trade Between $40-$60/bbl In The Medium Term”.

Moody’s- “PSU Bank Recap Is Credit Positive For The Sovereign; Expect Govt To Focus On Medium-Term Fiscal Framework To Bring Down Deficit; GST Council is Trying To Make Compliance Easier and Adjusting Rates; Expect Some Sort Of Slippage In Fiscal Deficit; Expect Fiscal Slippage Of Around 3.5% Of GDP; GST Implementation Has Been Disruptive To The Economy; GST Revenues Less Than Expected Due To Compliance Issues”.

After market hours, government notified officially issuance of PSBS recaps bonds. The bonds will have 6 different maturities with interest rates of between 7.35% & 7.68% payable at half yearly (Held to Maturity-HTM category).

As par CEA: “There is no need for new big bang reforms; instead suggests seeing proper completion of the existing programmes; The case for monetary easing is less persuasive now & pours cold water on rate cut hopes saying India is now close to its inflation target; Election year does not mean fiscal populism; Govt should believe in fiscal consolidation for its own sake & not for rating agencies; Medium term challenge is to boost agri productivity growth; by next 3-5 years, India should have a single GST rate”.

All eyes will be now on the government & on the budget (fiscal prudence or political populism and LTCGT).

Today Nifty was mostly supported by Tata Steel, Axis Bank, IOC (upbeat report card), Ambuja Cements, ICICI Bank, while dragged by ITC, Bosch, Sun Pharma, L&T & HDFC Bank.

Overall, Indian market was today supported by OMC (upbeat report card from IOC) while dragged by almost all the other sectors like banks & financials, automakers, techs, media, FMCG, mixed metals, pharma, reality, mixed energies, infra & consumer staples; mid/small-caps (broader market) was under severe selling pressure.

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Nifty Surged on Global Catch up Rally & Upbeat FY-19 GDP projection but off the Life Time High on Concern of Fiscal Discipline And Stock Market Bubble In The Economic Survey

Market Wrap: 29/01/2018 (17:00)

NSE-NF (Feb):11138 (+76; +0.68%)

(NS: 11130; Q2FY18 EPS: 391; Q2FY18 PE: 28.46; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):27497 (+123; +0.45%)

(BNS: 27498; Q2FY18 EPS: 867; Q2FY18 PE: 31.72; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 30/01/2018: Feb-Fut

Key support for NF: 11095/11070-11010/10975

Key resistance for NF: 11175/11195-11235/11285

Key support for BNF: 27300/27150-27050/26700

Key resistance for BNF: 27650/27850-28075/28405

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 11195 area for further rally towards 11235-11285 & 11325-11415 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 11175-11155 area, NF may fall towards 11095/11070-11010 & 10975-10930 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 27650 area for further rally towards 27750-27850 & 28075-28405 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 27600 area, BNF may fall towards 27300-27150 & 27050-26700 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Feb/India-50) today (29^th Jan) closed around 11138, jumped by almost 76 points (+0.68%) on mixed global cues & budget/economic survey optimism; but slipped from the day high on cautious tone of economic survey and signal of fiscal discipline breach in FY-18/19.

Nifty spot made another record high of 11171.55, before closing at 11130.40 on budget optimism, but there was visible selling in the broader market (mid-caps) on fiscal dilemma after the economic survey signaled that “pause in general Govt fiscal consolidation can’t be ruled out in FY-18”.

Subsequently, benchmark 10-year bond yields rose to 7.62 percent, up 14 bps from their previous close. Recently introduced Indian 10YGSEC bond yield soared by 1.86% and closed around 7.443% after the economic survey, affecting the overall market sentiment, including the PSBS (public sector banks).

Indian market today opened around 11141; gap up by almost 81 points from Thursday’s closing as it catches up the global rally coupled with upbeat GST figure for Dec’17 and encouraging disinvestment program by the government for FY-19;; it made an opening session low of 11080 & late day high of 11186.

Economic Survey:

Growth: 2017-18: Real GDP growth of 6.75%, nominal growth of 10.5%; 2018-19: Real growth of 7%-7.5%; Robust and broad-based signs of revival in economic activity; Growth reviving after temporary decoupling, but nascent macro pressures (oil prices, fiscal); FY-18 GVA growth seen at 6.1% vs 6.7% in FY-17; bond yield curve has become “unusually steep”.

Inflation: projected FY-18 CPI average around 3.3%; WPI: 2.9%.

Fiscal deficit: projected FY-18 fiscal deficit pegged at 3.2% of GDP.

Employment: Challenging in the days ahead.

Major Achievements of past year:  1) Implementing GST, responding quickly to transitional challenges; 2) Tackling long festering Twin Balance Sheet challenges by sending stressed debtors to IBC & bank recap; Validation: first sovereign upgrade in 14 years (Moody’s).

Outlook: (Upside potential) - exports, pick-up in private investment.

Risks-Factors to be watched: high/rising oil prices, sharp corrections of stock prices, “sudden stall” of capital flows; judicial delays; lack of proper economic data.

Policy Agenda for coming year: support agriculture; stabilize GST; finish resolution + recapitalization; privatize Air-India; head off macro-economic pressures.

India’s stock market boom different from US: better profit expectations, large portfolio allocation away from gold and real estate into stocks & higher interest rates; warrants heightened vigilance; US stock market rally is being supported by GDP & earnings growth, whereas in India, it’s opposite; Capital raising (public+private) has increased substantially but incommensurate with low cost of stock market capital (inverse of price-earnings ratio); compare with previous episode.

Rising Crude Oil may have a dampening effect on GDP growth in FY-19:

Every $10/bbl increase in the price of oil reduces growth by 0.2-0.3%; increases WPI inflation by about 1.7% & worsens the CAD by about $9-10 bln.

In brief, the economic survey is quite cautious and concerned over fiscal discipline, political populism, higher oil, stretched stock market valuation, higher real rate of interest, while upbeat on growth, revival in private investments & exports. Govt may focus more on employment, education & agriculture in the coming days.

There is nothing new for the market from this economic survey and the Govt termed it as “conservative”. Market jumped to the day high on upbeat GDP projection for FY-19 at 7-7.5%, but succumbed soon on concern of fiscal discipline, which is more vital for the market/rating agencies. The CEA also indicated less scope of any rate cut in FY-19 because of higher inflation trajectory.

Overall, Indian market was today supported by mixed private banks, automakers, financials, techs, media, mixed metals, consumer staples while dragged by FMCG, pharma, PSBS, reality, energies & infra to some extent.

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Market Mantra: Nifty/India-50

Market Mantra: 29/01/2018 (09:00)

SGX-NF: 11110 (+50)

For the Day: updated: 09:10

For 29/01/2018: Feb-Fut

Key support for NF: 11075/11030-10980/10935

Key resistance for NF: 11155/11175-11215/11285

Key support for BNF: 27300/27050-26800/26600

Key resistance for BNF: 27650/27825-28075/28405

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 11175 area for further rally towards 11215-11285 & 11325-11415 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 11155 area, NF may fall towards 11075-11030 & 10980-10935 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 27600 area for further rally towards 27750-27825 & 28075-28405 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 27550-27450 area, BNF may fall towards 27300-27050 & 26800-26600 area in the near term (under bear case scenario).

Nifty Tumbled On RBI Denial of Additional Dividend & Disappointment Over PSBS Recaps, But Recovered On Budget Optimism

Market Wrap: 25/01/2018 (17:00)

NSE-NF (Feb):11060 (-0.45; -0.41%) 

(NS: 11070; TTM Q2FY18 EPS: 391 TTM Q2FY18 PE: 28.31; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):27331 (-158; -0.58%) 

(BNS: 27446; TTM Q2FY18 EPS: 867; TTM Q2FY18 PE: 31.66; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 29/01/2018: Feb-Fut

Key support for NF: 11020/10950-10900/10840

Key resistance for NF: 11135/11175-11215/11260

Key support for BNF: 27300/27050-26800/26600

Key resistance for BNF: 27650/27825-28075/28405

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 11135 area for further rally towards 11175-11215 & 11260-11315 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 11115 area, NF may fall towards 11070/11020-10950/10900 & 10840-10790 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 27650 area for further rally towards 27750-27825 & 28075-28405 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 27600-27500 area, BNF may fall towards 27300-27050 & 26800-26600 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Feb/India-50) today (25^th Jan) closed around 11060, slumped by almost 45 points (-0.41%) after making a mid-session low of 11025 and an opening session high of 11126. Nifty spot edged down by 0.15% on renewed concern of fiscal discipline after RBI reportedly declined additional dividend; Government source also confirmed that “due to closure of Govt books of accounts for FY-18, there is no provision for additional income/dividend from RBI”. 

Also, below expected PSBS recaps (smaller amount for well managed big PSBS like SBI and bigger amount for fragile small PSBS like IDBI Bank) along with various tough caveats/conditions for structural reforms have dampened the sentiment. But market recovered later on budget optimism, although selling was quite visible in mid/small caps on MF regulatory restructuring. 

Market was also in pressure on upward trajectory of Brent crude oil, hovering above the $70 mark and along with it, reports of no additional dividend by the Govt, Indian 10YGSEC bond yields jumped by 0.43% and closed around 7.31% on concern of fiscal discipline; consequently Public sector banks (PSBS) came under renewed pressure; overall global cues were also negative on lower USD & concern of trade war.

But, Nifty closed the Jan series with blockbuster gain of 5.65%, at multi-month high on global euphoria of similar trend in equities coupled with domestic optimism about earnings recovery, a market friendly budget based on reforms & not on political populism, PSBS recaps & a quick NPA resolution and hopes of fiscal consolidation.

Market may be disappointed over 1st tranche of PSBS recaps:

The latest PSBS recaps injection through a combination of non-SLR bonds & cash were just one step in the long process to clean up India's bad debt, and that the lenders' final capital position will also depend on how they undertake the central bank's directive to take nearly 40 large corporate loan defaulters to bankruptcy proceedings, which will likely involve haircuts on their loans; the current recaps amount may be too little & too late, although rating agencies has termed it credit positive for the PSBS.

Both Moody’s and S&P termed capital for Indian banks is a step towards stronger balance sheets; India's capital infusion into PSU banks is credit positive.

As par some trial balloon, for FY-19 budget, infra spending may rise nearly 25% to about Rs. 5 tln in 2018-19; power, roads & highways, renewable energy may get spending fillip; expect hike on electricity-for-all scheme ‘Saubhagya Yojna’; expect tax rationalization for infrastructure investment trusts and personal income tax for middle class group; corporate tax may not be tinkered too much this year.

After market hours, Government announced an upbeat revenue collection figure of GST for Dec’17 at Rs.0.87 tln, which may be a positive surprise, considering tax rate revisions.

Today Nifty was helped mostly by ICICI Bank, HDFC Bank, VEDL, L&T, Axis Bank, IBULLS HSG, Kotak Bank, IOC, Ultratech Cement & Indusind Bank by around 30 points cumulatively (top ten contributors).

Nifty was mostly dragged by SBI, TCS, UPL, Adani Ports, Maruti, Infy, Bajaj Fin, Auro Pharma, Hero Motors & Tata Motors by almost 38 points altogether (top ten draggers).

Overall, Indian market today was supported by Private Banks (disappointed recaps for large PSBS will help private banks to capture more corporate lending share), financials, metals (higher metal prices on slump in USD), while dragged by PSBS, auto makers, FMCG, techs, media, pharma, reality, infra, energies & consumption stocks.

Overall Q4 report card till day may be also mixed and not a great surprise to justify the lofty valuation.

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