Market Wrap: 02/02/2018 (17:00)
NSE-NF (Feb):10741 (-293; -2.17%)
(NS: 10761; Q2FY18 EPS: 391; Q2FY18 PE: 27.52; Abv
2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)
NSE-BNF (Jan):26436 (-783; -2.88%)
(BNS: 26451; Q2FY18 EPS: 867; Q2FY18 PE: 30.51; Abv
3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)
For 05/02/2018: Feb-Fut (Key Technical Levels)
Support for NF: 10615/10580-10530*/10475
Resistance for NF: 10660/10750-10795/10895*
Support for BNF: 26400*/26190-26000/25750
Resistance for BNF: 26650/26900*-27050/27200
Trading Idea (Positional):
Technically, Nifty
Fut-Jan (NF) has to sustain over 10750 area for further rally towards 10795-10895
& 10935-11050 zone in the short term (under bullish case scenario).
On the flip
side, sustaining below 10730 area, NF may fall towards 10660-10615/10580
& 10530/10475-10415/10375 zone in the short term (under bear case
scenario).
Technically, Bank
Nifty-Fut (BNF) has to sustain over 26650 area for further rally towards
26900-27050 & 27200-27475 zone in the near term (under bullish case
scenario).
On the flip side, sustaining
below 26600 area, BNF may fall towards 26400-26190/26000 & 25750/25450-25350/25250
area in the near term (under bear case scenario).
Indian market (Nifty Fut-Feb/India-50) today (2nd
Feb) closed around 10740, tumbled by almost 293 points
(-2.17%), on worries about fiscal discipline, higher inflation,
higher oil, a hawkish central bank (RBI), re-imposition of long term capital
gain tax (LTCGT) in the budget yesterday and overall concern of stretched
valuation and terrible global cues amid surge in bond yields, which is negative
for equities on higher borrowing costs.
Overall,
it was a “Black Friday” and bloodbath on the Dalal Street as market gives a
thumbs down to the FY-19 budget, which is being seen as politically populist,
eyeing for the next series of elections and far away from the fiscal
consolidation path; today’s epic fall is the 2nd biggest post-budget
day loss.
Moreover,
reintroduction of LTCGT on over Rs.1 lakh @10% on LTCG without benefit of the
inflation indexation and along with that STT (securities transaction tax) may
have made the Indian market “mathematically unattractive” despite
grandfathering it up to 31st Jan’18; institutional funds may see
some rotational shift towards the safety on bonds.
There
were wild rumours in the market today regarding LTCGT applicability, especially
with the FII (grandfathering clause). After market hours, government has
clarified that grandfathering clause & the overall LTCGT rules are same for
all types of market participants including FII.
Government,
on its part seems quite deterrent about LTCGT, as it will be eventually
applicable to the 5% large investors (institutions, HNI, corporates, LLP),
having LTCG of more than Rs.1 lakh in a year; most of the small retail
investors (95%) do not actually earn from the market even on long term basis
for their psychological mind set-up; on short term basis, most of them (retail)
also suffering huge losses from trading & FNO activities, which is not suitable
for small retail traders.
Market
is apprehending that despite stable INR, FII may relook their India investment
strategy on account of fiscal worries & LTCGT rule as overall capital
market taxation burden is now huge. FII may also shift their trading on the SGX
more in the coming days as SGX may launch derivative contracts of Nifty-50
scrips in the coming days.
Indian bond yield surged:
Indian
10YGSEC bond yield today also surged to 7.664% before closing lower at 7.571%
after rumour that RBI is in talks with the government for open market
operations (OMO), secondary market bond purchase (Indian version of mini QE) to
support bonds from further plunging and may also raise FII limit in the bond
(GSEC) market; but all these were subsequently denied by the central bank
later.
Market
sentiment was further spooked by Fitch’s warning about Indian rating on higher
fiscal deficit (combined state & centre well above 6.5%) & high
debt/GDP ratio (above 70%) and weak public finances. Government projects fiscal
deficit for FY-18 at 3.5% vs earlier est 3.5%; prior: 3.5%; for FY-19,
projected fiscal deficit 3.3% vs earlier Govt est 3%; market est: 3.2%.
Earlier,
in 2014, government had promised to bring down the fiscal deficit to 3% of GDP
by FY-17, which was subsequently pushed back to FY-18 & then FY-19 and now
to FY-20. Thus, despite all the so called “green shoots” in the economy,
government is not being able to be fiscally disciplined as the entire Indian
growth story is dependent on Govt capex for the last few years amid muted
private capex & subdued private consumption.
As
par Fitch, the government’s commitment to embrace the recommendation of the
FRBM committee to adopt a ceiling of 40 % of GDP for central government debt is
positive, even though the temporary delay in consolidation makes it unlikely
that this debt level will be reached by 2022-23, as recommended by the
committee last year.
Any
government, on its part can spend unlimited capex to stimulate the economy, but
it has also certain costs and thus Indian 10YGSEC bond yield is now hovering
around 7.60%, one of the highest in the world and far more than China at around
3.90% or US at around 2.85%.
A
combination of historically higher bond yields, higher interest rates and
higher imported inflation (highly devalued currency) has made India into a high
cost economy over the years, which is now moving towards stagflation (higher
inflation & lower growth). This is in sharp contrast to the narrative of
global goldilocks economy (decent growth & very low inflation).
The
whole Indian economy & consumption story is running on huge currency
leverages and on exporters’ earnings (such as IT outsource) as 1 USD is
fetching 65 INR (vs 6.30 Yuan). Also, DeMo (war on black money) is affecting
Indian consumption story as almost 30% of high value discretionary spending was
dependent on black/unaccounted money.
Looking
ahead, market may now focus on RBI (7th Feb); if RBI takes a stance
of hawkish hold, then expect more pressure on the Indian market as market will
then begun to discount a rate hike by RBI in H2FY19 in order to keep present
policy parity between INR & USD (Fed), everything being equal.
Today
Nifty was supported mostly by TCS, Tech-M, HCL Tech, HUL & ITC by only 4
points altogether, while it was dragged mostly by RIL, HDFC, HDFC Bank, ICICI
Bank, Bajaj Fin, Maruti, L&T, Axis Bank, IOC & SBI by around 156 points
cumulatively.
Overall,
Indian market was today helped by techs to some extent (higher USD), while
dragged by almost all the other sectors like banks & financials,
automakers, mixed FMCG, media, metals, pharma, reality, consumptions, energies,
infra; mid/small caps plunged by over 4% as selling was more intense in the
broader market in line with last few weeks as valuations are at crazy level.
SGX-NF
BNF
SPX-500
No comments:
Post a Comment