Technical & Macro Analysis Of Indian & Global Market----: 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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