Thursday, 1 March 2018

Nifty skids on negative global cues amid concern of a hawkish Fed, but recovered after government blinks on smaller NPA crackdown

Market Wrap: 28/02/2018 (17:00)

NSE-NF (March):10520 (-44; -0.42%)

(NS: 10493; Q2FY18 EPS: 407; Q2FY18 PE: 25.78; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):25179 (-328; -1.27%)

(BNS: 25107; Q3FY18 EPS: 821; Q2FY18 PE: 30.58; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 01/03/2018:

Updated: 08:55

SGX-NF: 10445; (-75 points)

(Gap down on negative global/US cues amid renewed US political jitters and Fed concern)

Expected BNF opening: 25000

March-Fut (Key Technical Levels)

Support for NF: 10415/10330-10290/10240

Resistance for NF: 10495/10525-10575/10650

Support for BNF: 25000/24800-24550/24450

Resistance for BNF: 25200/25300-25450/25575

Technical View (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10525 areas for a further rally towards 10575-10650 and 10695-10750 zones in the short term (under bullish case scenario). 

On the flip side, sustaining below 10495 areas, NF may fall towards 10415-10360/10330 and 10290-10240 zones in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25300 areas for a further rally towards 25450-25575 and 25800-26000 zones in the near term (under bullish case scenario).

On the flip side, sustaining below 25250 areas, BNF may fall towards 25000-24800 and 24550-24450 zones in the near term (under bear case scenario).

The Indian market (Nifty Fut-March/India-50) closed around 10520 on Wednesday (28th Feb), skids by almost 0.42% on negative global cues after Powell “shocker” in his first testimonial Q&A session, where he opens the floodgates for at least 3 or even 4 multiple Fed hikes in 2018. 

Also, China PMI data was subdued, affecting the overall global market sentiment. At the same time, Indian Mfg PMI also came muted at 52.1 vs estimate 52.8; prior: 52.4.

Apart from subdued global cues, the Indian market was also under pressure amid reports on Tuesday that government will clamp down on all NPAs above Rs.0.05 bln (50 cr) for any possible frauds or willful default like in the latest PNB saga.

The Indian market recovered after government blinks on the smaller NPA crackdown:

But the market recovered quite smartly after reports on Wednesday that government will only investigate NPAs above Rs.0.25 bln (250 cr) as Rs.0.05 bln NPA is a very “small amount” in the Indian banking system, where billions & trillions of Rupees NPAs are involved and widespread clampdown on such small amounts may also destabilize or choke the entire banking operations (lending & borrowing), which may in effect could also affect the normal economic activity.

Subsequently, banks, especially PSBS (public sector banks) recovered along with improvement in the overall market sentiment. Nifty-Fut on Wednesday made a session low of 10466 and a late day high of 10555 after the Indian government relents to some extent on the NPA crackdown.

But the Indian market could not sustain the day high towards the closing session, as fiscal deficit figure flashed on the upper side at Rs.6.76 tln vs 5.64 tln for the Apr-Jan period (Y/Y), which is above 113% of the budget estimate.

Also, news of Aircel bankruptcy may have affected the sentiment as 4 Indian PSU banks (SBI, PNB, BOB, Canara Bank) are set to lose out around Rs.10-12 bln for its NPA and among that, SBI has the highest at around Rs.5 bln. The market may be concerned about more NPAs coming out of PSBS carpet amid LOC/LOU and normal lending scams. As par some reports, Bank management will be held responsible if lenders fail to report frauds in 15 days.

Aftermarket hours on Wednesday, Indian GDP for Q3 flashed as upbeat at 7.2% vs estimate 6.9%; prior: 6.3%, putting the economy again at the fastest growing above China. But, on annualized basis it came as subdued at 6.6% vs estimate of 7.1%; prior: 8.2% amid DeMo & GST disruptions. Also, infrastructure (core sector) output came upbeat at 6.7% vs estimate of 4% in January (Y/Y).

In brief, higher GDP and inflation may not only put the Indian Central Bank (RBI) on hold for FY-19, but it may also induce the RBI to change its policy guidance towards hawkish mode (hike) rather than neutral. RBI may be compelled to take a hawkish hold stance in the coming months tracking a hawkish Fed, eyeing for 3-4 hikes in 2018, everything being equal.

On Wednesday, Indian market was helped by techs, PSBS, while dragged by private banks, financials, FMCG, media, metals (muted China PMI data), pharma (US FDA concern), consumption and infra stocks.




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