Market Wrap: 21/03/2018
NSE-NF (March):10181 (+38; +0.37%)
NSE-BNF (Jan):24340 (+115; +0.48%)
Valuation metrics:
NS: 10155; Q2FY18 EPS: 410; Q2FY18 PE: 24.77; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360
BNS: 24256; Q3FY18 EPS: 822; Q2FY18 PE: 29.51; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220
For 22/03/2018:
Updated: 08:05
SGX-NF: 10205; (+24; +0.20%)
Expected BNF opening: 24400 (+0.20%)
(Slightly gap-up on mixed global cues after a “dovish hike” by Fed coupled with Hong-Kong and China OMO rate hike)
March-Fut (Key Technical Levels)
Support for NF:
10200/10150-10100/10070-10030*/9995-9950/9880
Resistance to NF:
10265/10285-10305*/10355-10405/10445-10495/10530
Support for BNF:
24150/24050-23950*/23850-23600/23400-23150/23000
Resistance to BNF:
24550/24650-24850*/25050-25200/25300-25600/25800
Technical View (Positional):
Technically, Nifty Fut-Jan (NF) has to sustain over 10305 for a further rally towards 10355/10405-10445/10495-10530/10600 in the short term (under bullish case scenario).
On the flip side, sustaining below 10285-10265 NF may fall towards 10200/10150-10100/10070-10030/9995 in the short term (under bear case scenario).
Technically, Bank Nifty-Fut (BNF) has to sustain over 24550 for a further rally towards 24650/24850-25050/25200-25300/25600 in the near term (under bullish case scenario).
On the flip side, sustaining below 24500, BNF may fall towards 24150/24050-23950/23850-23600/23400 in the near term (under bear case scenario).
The Indian market story on 21/03/2018:
The Indian market (Nifty Fut-March/India-50) closed around 10181 on Wednesday, inched up by almost 0.37% on mixed global cues amid concern of a hawkish hike by Fed later in the day. The Indian market opened around 10189 on overnight positive lead from US market and rallied quite smartly to a high of almost 10266 in the 1st half of trading on the buzz that government may hike FII limit in the GSEC bond market to lower the surging bond yield.
The Indian government is also mulling buying back about Rs.15.5 bln of government (GSEC) bonds to meet FY-18 aim. Meanwhile, Primary Dealers (PD) wants shorter duration papers in next FY borrowing. PD said shorter tenure bonds will lower likely MTM losses and will boost demand for FY-19 borrowings.
As a result, Indian 10Y GSEC bond yield fell to 7.582%, which has helped the PSBS and the overall risk-on market sentiment on the perception of lower borrowing costs; 10Y bond yield recently made a high of 7.80%, the highest among its Asian peers and also one of the highest in the EM currently.
India is also running a significantly higher dual deficit like US (current account and fiscal deficit) and higher oil is bad for the Indian economy as almost 80% of oil is being imported.
There was also report that the Indian Cabinet will discuss simplifying procedure for strategic divestment of 2 PSUs and procedure for cases related to the acquisition of a CPSE by another CPSE.
Although S&P said that there are needs for more concrete steps to tighten internal controls and sound risk management practice at PSU banks, but it sees a stable outlook for rated Indian banks in FY-19. S&P also added that the amount announced by India for bank recap may be sufficient for PSU banks. Subsequently, some PSU banks have got some traction on Wednesday.
But the Indian market came into an intense selling spree in the 2nd half of trading after European market opens on a weak note on the concern of a hawkish hike by Fed later in the day coupled with ongoing concern about an all-out trade war between the world’s two largest economies the US and China.
A dovish hike by Fed may not be helpful for equities as borrowing costs will surge even with 3 rate hikes in 2018:
However, on Wednesday, Fed goes for a dovish hike with projections of two more hikes in 2018 against the hawkish expectation of 3 more hikes and 3 more hikes in 2019 against earlier dot-plots of 2 hikes. Moreover, Powell has downplayed the Fed dot-plots and thus USD is down on credibility of the dot-plots itself for longer term (2019-20). Fed was also quite pessimistic about US wage growth and inflation, while very much optimistic on the overall US economic prospect.
In brief, Fed’s dovish hike may be termed as a goldilocks hike, favorable for the US stocks on lower USD and US bond yields, but it may not be so much helpful for export-heavy Asian as well as European market. Again, having said that, a lower USD/US bond yields may be also helpful for overall macro of EM economy like India, which is largely an import-oriented economy, despite 60% of Nifty earnings come from exports.
But, whatever be the Fed stance (dovish or hawkish), the fact is that Fed is going for multiple rate hikes in 2018-20 to make terminal US rate around 3.50% by 2020 from present 1.50% level (before Wednesday hike). Thus, Fed is clearly on the QT (quantitative tightening) path and other major central banks including ECB, BOJ, PBOC BOE, BOC are bound to follow Fed in the months ahead.
After Fed rate hike, Hong-Kong Monetary Authority (HKMA) has also raised its rate (overnight discount window) by 0.25% to 2% on Thursday. PBOC has also raised its OMO rate and overall, the days of easy money may be over, which is itself negative for the global equities including India. RBI may also follow Fed in the coming months, if Indian core CPI stays around 5% consistently, much above the RBI tolerance level of 4%.
Indian market also under pressure on political and NPA jitters:
Apart from Fed phobia, the Indian market also came under pressure amid ongoing political ruckus in the Parliament and repeated adjournments over the “no-confidence” drama by the oppositions and the ruling party.
Overall, market sentiment was also being hurt by various legal & procedural hurdles in each & every resolution cases at NCLT. As par report, around 9000 odd cases are now pending in NCLT and thus it needs to ramp up their infra to resolve cases at a faster pace.
Thus, it’s difficult for NCLT to resolve pending cases within the stipulated time; hence digitization of cases at NCLT is a must, otherwise overall resolution process will be very slow and time & resource consuming, yielding little result. This may affect the prospective investors (bidders) mood in buying up India’s stressed assets.
The market is also concerned about the wider impact of the PNB “loot” (loan scam) and similar other cases, being reported now, small or big. As PNB fraud is quite large and is affecting almost 30 Indian banks, having some exposure in the LOU fiasco, the market is worried that the PNB saga will not come to an end anytime soon.
The real street is now also feeling the heat on the PNB scam as RBI has banned LOU/LOC and put various restrictions on the corporate loan addiction like external commercial borrowings. As par report, the Tata Steel bid of Bhushan Steel in the NCLT may be in the deep cloud because of the external commercial borrowings restriction issue.
On Wednesday, Indian market was helped by banks & financials, FMCG, reality, consumption, energies (higher oil), infra, while dragged by automakers, media, metals, pharma (Trump tantrum), selected PSU and private banks and techs.
Global cues were muted during Indian market hours:
On Wednesday, during the Indian market hours, US stock future (SPX-500) was down 0.01% and European stocks were down 0.04% as the markets await the FOMC's first policy decision with Powell as Fed Chair. Also, a higher local currency (EUR and GBP) were affecting the EU and UK stocks. But overall losses were limited due to strength in energy stocks with oil up 0.93% at a 3-week high after API data late Tuesday showed the US crude inventories fell -2.74 million bbl last week.
Asian stocks closed mixed: Japan closed for the holiday, Hong Kong -0.43%, China -0.29%, Taiwan unchanged, Australia +0.23%, Singapore -0.06%, South Korea -0.06%, India +0.42%.
China's Shanghai Composite fell back from a 1-week high and closed lower as insurance stocks sold-off after a report from S&P Global Ratings said increased regulatory controls could cut the insurance sector's pace of growth in half over the next two years.
Asia stocks followed the US example where the major indices rebounded from the recent tech sell-off. ASX 200 and KOSPI were marginally positive as Australia’s energy sector tracked the outperformance seen in its US counterparts; although gains were contained approaching the FOMC and with Japan closed for the national holiday, overall volume was thin.
Elsewhere, Hang Seng and Shanghai led the region as focus turned to earnings with the top performers in Hong Kong spurred ahead of Tencent financial results. However, as China closed, mainland market slumped, with China’s ChiNext Index of small caps and tech stocks sliding 1.9% Wednesday afternoon, wiping out earlier 0.7% gain. PC makers, pharmaceutical stocks led the losses. Insurers surged in the morning session but tumbled before close following a bearish S&P report on the regulatory crackdown.
Europe slumped in early trading after Asian shares dropped into the close and copper sagged again. Adding to Europe's uncertainty was a report that Italian ex-premier Berlusconi is open to possible center-right coalition pact (“bizarre coalition”) with anti-establishment Five Star Movement which was spooking markets. The Stoxx-600 fell 0.2%, led lower by travel and leisure sector with airlines hurt by a surge in oil prices.
Overall, markets are also on edge because of the trade war rhetoric and the selloff in US tech shares, which has wiped almost $50 billion off the value of Facebook this week amid an uproar over the alleged misuse of users’ data. The Facebook losses have filtered through other tech shares in the US and overseas, with shares in Twitter fell by almost 10%.
BNF
USDJPY
SGX-NF
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