Wednesday 31 January 2018

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 (30th 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 2/3rd 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.






SGX-NF


BNF


10YJGB

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