Thursday, 1 February 2018

Nifty inched down amid subdued global cues and hopes for a market friendly budget & concern for fiscal discipline and stretched valuation

Market Wrap: 31/01/2018 (17:00)

NSE-NF (Feb):11059 (-13; -0.12%)

(NS: 11028; Q2FY18 EPS: 391; Q2FY18 PE: 28.20; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):27468 (+109; +0.40%)

(BNS: 27379; Q2FY18 EPS: 867; Q2FY18 PE: 31.58; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 01/02/2018: Feb-Fut (Key Technical Levels)

Support for NF: 11020/10980*-10940/10890

Resistance for NF: 11125/11155-11195*/11255

Support for BNF: 27300/27100-26900/26600

Resistance for BNF: 27500/27650-27850/28075

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 11125 area for further rally towards 11155/11195-11255 & 11285/11305-11350/11415 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 11105 area, NF may fall towards 11020/10980-10940/10890 & 10840-10795 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 27450/27300-27100 & 26900-26600 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Feb/India-50) today (31st Jan) closed around 11059, edged down by almost 13 points (-0.12%) on concern of fiscal balance & stretched valuation following CEA’s economic survey; but well off the day’s low on hopes of a market friendly budget tomorrow; late recovery in regional market (HK) has also helped.

Indian market today opened gap down around 11039 on subdued global cues amid overnight plunge in US market on surging bond yields & concern about Trump’s SOTU speech for any trade protectionism rhetoric; but Asian market soon recovered as Trump refrained from any commentsthat would have unnerved the market; Indian market also followed suit and made a mid-day low of 11007 after an opening session high of 11088; private banks led the recovery today.

Indian 10YGSEC bond yield edged down by 0.07% to 7.431% ahead of the union budget, which may be the last full fledged budget before government (Govt) goes on general election in early 2019. Market sentiment is also being boosted by disinvestment spree by Govt, even for unlisted PSUS.

Market is expecting that Govt will only change the definition of LTCGT (long term capital gain tax) from present 1 year to 2 year with zero rate; if Govt tinkered it with 3 year or impose a tax of 10-15% on the present tenure, then it may be negative for the market to some extent. In all the advance economies, there are LTCGT unlike in India.

Market will also keenly watch the fiscal deficit figure for FY-18 & 19; if FY-18 fiscal deficit came much above the estimated 3.2%, say at 3.5-3.7%, then it will be negative for the market.

Overall, market is not expecting a “big-bang” budget from the Govt this year amid dilemma of fiscal discipline & growth (Govt capex funded); but thrust may be on rural capex & infra, personal income tax rate tinkering on low-middle income group in an effort to provide some relief after DeMo & GST pain.

Overall, market expectations of the budget:


FM could well relook the MAT rate or consider abolishing it altogether
Reduce/deregulate corporate tax rate (already committed in previous budget to simplify it with fewer exemptions).
Enhance tax deductions, exemptions for individuals
Tax benefits for salaried class through standard deduction and revision of allowances
May tax long-term capital gains in listed securities or change the definition (LTCGT)
Disallowance of expenses on which GST not paid.


Establish fund to guarantee credit to encourage investment in agriculture sector
Allocate more funds for crop insurance schemes
Increase spending for dams and canals, micro irrigation systems
Provide subsidies for building cold storage to avoid wastage of perishable crops
Reduce fertilizer subsidies


Allow full tax deduction for provisioning of non-performing assets (NPAs) at banks
Raise the threshold for tax deduction on interest paid on bank deposits from current Rs 10,000/-
Reduce the tenure of tax-exempted retail term deposits to minimum of 3 years from current 5
Carve out tax provisions to streamline proceedings under Insolvency and Bankruptcy Code


Increase investment by 10-15% in roads from Budget 2017
Provide support for key road projects, including Bharatmala project, which will connect western and eastern India
Increase railways investments by 10% from 2017/18 budget

 Technology and IT sector:

Provide greater incentives for digital transactions
Support digital payments infrastructure

 Auto sector:

Announce policy on scrapping commercial vehicles that do not comply with emission norms if operational for over 15 years

 Real estate sector:

Set single-window clearance for all real estate projects, especially housing to avoid execution and project delays
Give infrastructure status to real estate to help bring down finance, project costs, make homes more affordable
Reduce GST rate for under-construction real estate projects from current 12%
Spend more on affordable housing

 Energy sector:

Reduce “cess” duty to 8-10% from 20% for oil and gas exploration and production
Reduce or exempt city gas distribution companies from excise duty
Provide subsidy aid to downstream companies selling LPG, kerosene below market prices

 Metals and mining sector:

Decrease in basic customs duty on coking coal across grades
Decrease in export duty on iron ore above certain grade levels
Hike basic customs duty on aluminium scrap to protect domestic industry

Cut import tax on gold to 2-4% from 10% to prevent smuggling.

Finally, an interestingly timed Oxfam survey, suggests that, “the richest 1% of India cornered 73% of wealth generated last year,” has added to the apprehensions of wealthy people. It would be interesting to see whether the FM would want to toy with any thoughts on the introduction of inheritance tax, especially after two of the biggest initiatives of DeMo and GST.

But, Govt may not take any undue risk like LTCGT & inheritance tax to destabilize the capital market, as it need a vibrant market for its own interest like disinvestment, which is now most crucial for its deleveraging & fiscal discipline.

Overall, Indian market has gained almost 30% since last year’s budget on global goldilocks rally & power of domestic liquidity (especially after DeMo, which led to so called financialisation of idle household savings; i.e. transition of erstwhile black money to white money in the banking channel). But unlike US, this rally was not supported by growth in the economy or earnings and that may be the biggest headwind for the market as of now.

Today Nifty was supported mostly by RIL, HDFC, HDFC Bank, Kotak Bank, Bharti Infratel, Tata Motors, Indusind Bank, HPCL, IOC (earnings optimism) & Eicher Motors (e-Bike launch) by around 39 points altogether.

Nifty was dragged mostly by Infy, ITC (concern of tax rate tinkering on cigarettes in the budget), Tata Steel, HUL, TCS, L&T, Sun Pharma, IBULLS HSG, DRL & UPL by almost 51 points cumulatively.

Overall, today Indian market was supported by private banks & financials, energies while dragged by FMCG, techs, metals, pharma (US woes & Trump’s comments about lower prices of prescription drugs), PSBS, automakers, media, infra and consumption stocks; selling was quite visible in broader market (mid/small caps).




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