Tuesday, 20 March 2018

Nifty plunged on negative global cues and political jitters at home and abroad & widening CAD

Market Wrap: 19/03/2018

NSE-NF (March):10123 (-110; -1.07%)

NSE-BNF (Jan):24339 (-268; -1.09%)

Valuation metrics:

NS: 10094; Q2FY18 EPS: 410; Q2FY18 PE: 24.62; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

BNS: 24245; Q3FY18 EPS: 822; Q2FY18 PE: 29.50; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

For 20/03/2018:

Updated: 08:15

SGX-NF: 10080; (-43 points; -0.42%)

Expected BNF opening: 24230 (-0.45%)

(Gap-down on negative global/US cues amid tech sell-off on Facebook data breach concern and Apple Micro-LED screen supply coupled with higher bond yields for the US corporate bonds and Trump’s attempt to corner China on trade war agenda in lieu of US exemption)

March-Fut (Key Technical Levels)

Support for NF:


Resistance to NF:


Support for BNF:


Resistance to BNF:


Technical View (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10200 for a further rally towards 10250/10280-10355/10410-10455/10495 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10180-10150 NF may fall towards 10070-10030/9995-9970/9950-9880/9815-9745/9705 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 24550 for a further rally towards 24650/24850-24950/25100-25250/25400 in the near term (under bullish case scenario).

On the flip side, sustaining below 24500-24250, BNF may fall towards 24150/23950-23850/23600-23400 in the near term (under bear case scenario).

The Indian market story on 19/03/2018:

The Indian market (Nifty Fut-March/India-50) closed around 10122 on Monday, plunged by almost 1.07% amid ongoing political jitters after TDP and several other political parties moved a “symbolic” no-confidence motion against the NAMO government coupled with negative global cues. Nifty-Future made an opening high of around 10235 and late day low of 10102 on political uncertainties and deteriorating macro at home amid higher oil and higher fiscal & current account deficits (CAD).

After the market hours, reports came that the Indian government has raised the FPI limit on GSEC to 6-8% over next 2-5 years effective from FY-19 (1st April’18) in order to get more FII participation and create more demands for the Indian bonds and lower the surging bond yields.

But, looking at the higher US bond yields, now hovering around 2.80% and India’s worsening macros, even the higher Indian bond yield of around 7.50% may not be attractive enough for the FIIs to finance India’s fiscal deficit to a large extent so that the bond yield goes significantly lower.

Moreover, the market is concerned that the current PNB loan scam may be just a tip of the iceberg and more such “loot” (theft) may come into daylight. Apart from normal business failure and lack of project viability, it now seems that a large part of the Indian NPA is due to such frauds, willful defaults and diversion of funds to out of the country and also to the real estates and other financial assets. There is a distinct lack of trust deficit on the whole Indian banking system and its lending & borrowing culture.

The ongoing “war of words” between the promoter of the public sector banks (government) and the regulator (RBI) after the PNB fiasco may be also affecting the overall market sentiment on the vital question-who is in actual charge with all the regulatory responsibilities?

Indian market valuation may be still stretched:

After the market hours, Q4 corporate advance tax collection came as 11% higher (YOY) and for FY-18 it came as 13% higher so far, which is on track for the budgeted estimate or revised FY-18 target. But a 13% higher advance tax may be also indicating that FY-18 earnings (EPS) growth may not be so much great to justify a TTM PE of over 25 and thus the present correction is inevitable, market was just looking for an excuse to sell, like FY ending profit booking coupled with negative global & local cues.

Thus, either market (Nifty) needs to correct further 15-20% to go for a TTM PE of around 20 or FY-18/19 EPS needs to grow to around 500 from present level of 410 in order to justify Nifty print around 10000; i.e. EPS need to jump by 25%, which may be really tough under present macroeconomic situation.

On Monday, Indian market was dragged by almost all the major sectors like banks & financials, automakers, FMCG, techs, media, metals, pharma, reality, consumption, energies, and infra as selling was quite solid and broad-based.

Global cues were negative:

On Monday, during Indian market hours, global cues were also negative on tech disruptions and concern for trade wars & White House purge.

US stock future (SPX-500) were down by almost 0.54% at a 1-week low and European stocks were down -0.71% as weakness in commodity prices leads mining stocks and raw-material producers lower.  Also, technology stocks were lower, led by suppliers to Apple, after reports that Apple is making a significant investment in the development of next-generation Micro-LED screens. The Facebook data breach has also affected the market sentiment.

EU and UK market was under pressure on higher local currency (EUR/GBP) and bund/Gilt yields. British Gilts fell and GBP/USD climbed +0.56% to a 3-week high after a report that the EU and UK have agreed to broad terms on Britain's 2-year Brexit transition deal (Brexit deal breakthrough). EUR jumped on the rumor of ECB hikes from Q2-2019.

Asian stocks closed mixed: Japan -0.90%, Hong Kong +0.04%, China +0.29%, Taiwan +0.17%, Australia +0.17%, Singapore -0.39%, South Korea -0.78%, India -0.76%. ASX 200 finished positive as strength in energy kept the index afloat, while Nikkei 225 underperformed amid a firmer JPY and as support for PM Abe’s administration slumped to 33% (Prev. 45%) in the wake of the land-sale scandal.

Also, weakness in Asian technology suppliers to Apple led Japanese stocks lower on a report that Apple is designing and producing its own device displays for the first time.  China's Shanghai Composite recovered from a 1-1/2 week low and closed higher after China's incoming central bank governor, Gang, signaled that he will maintain the course of financial liberation set forth by his predecessor Zhou.

Global/US stocks and SPX-500 point to a lower open on Monday amid plenty of potential catalysts: sudden concerns about Goldilocks global growth rolling over, the slide in Apple suppliers which hit Asian stocks following a report that Apple is developing its own micro-LED screen, Trump's trade war, this weekend's McCabe firing, the ongoing purge in the White House. 

Also, Abe's record low popularity amid Japan’s land scandal, lack of Brexit clarity, Italy’s struggle to form a government, Facebook sliding on data breach concerns, Russia’s spat with the U.K., upcoming concerns about this Wednesday's Fed meeting, ongoing Brexit talks and G-20 gathering are affecting the risk-on sentiment globally; the list of headwinds is quite long against potential tailwinds.

The biggest risk event this week for global markets is the first US interest rate decision under new Fed Chair Powell. It comes just weeks after he hinted that he’s open to lifting the policy rate four times this year, rather than the three currently reflected in dot-plot forecasts. As par Powell, four rate hikes in a year may be quite normal & gradual and if Powell goes for four rate hikes projections for both 2018 and 2019, then the equity market can react adversely.

Furthermore, trade war concerns also remain front and center, especially after Sunday's bizarre snafu in which Treasury official Malpass said he misspoke hours after claiming the US was pulling out of decade-old formal economic talks with China. US attempt to corner China in the global trade may be counter-productive as China helped the so-called global Goldilocks growth by its cheap yet quality products and overall, China is now the “real boss” of Trump, being the largest UST holder and foreign creditor of US.




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