Market Wrap: 27/03/2018
NSE-NF (March):10159 (+156; -1.55%)
NSE-BNF (March):24303 (+623; +2.50%)
NS: 10131; Q2FY18 EPS: 410; Q2FY18 PE: 24.71; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360
BNS: 23935; Q3FY18 EPS: 822; Q2FY18 PE: 29.12; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220
SGX-NF: 10175 (+16; +0.15%)
Expected BNF opening: 24350 (+0.20%)
(Almost flat despite upbeat global cues on easing of trade war tensions between US & China after reports of backdoor negotiations)
March-Fut (Key Technical Levels)
Support for NF:
Resistance to NF:
Support for BNF:
Resistance to BNF:
Technical View (Positional):
Technically, Nifty Fut-March (NF) has to sustain over 10230 for a further rally towards 10295/10350-10395/10425-10465/10495 in the short term (under bullish case scenario).
On the flip side, sustaining below 10210-10190 NF may fall towards 10125/10100-10040/10000-9940/9900 in the short term (under bear case scenario).
Technically, Bank Nifty-Fut (BNF) has to sustain over 24650 for a further rally towards 24775-24875/24975-25100/25175 in the near term (under bullish case scenario).
On the flip side, sustaining below 24600-24550, BNF may fall towards 24350-24150/23950-23750/23600-23400/23150 in the near term (under bear case scenario).
The Indian market story on 26/03/2018:
The Indian market (Nifty Fut-March/India-50) closed around 10159 on Monday, soared by almost 1.55% on positive global cues amid hopes of a true in US-China trade war narrative after weekend reports of backdoor negotiations between the two economic superpowers. Apart from easing of trade tensions, the Indian market mood was also boosted by a surprising cut in H1 government borrowing plans for FY-19, which may help to ease the surge in Indian bond yields.
On Monday, as a result of positive global as well as local cues, Nifty-Future (March) saw huge short covering ahead of the derivative expiry on 28th March, Wednesday and made a late day high of 10161 after making an opening session low of 9976, tracking subdued global cues early in the Asian session amid a back Friday because of trade tensions between US and China.
As par some reports, US and China have quietly started negotiations to improve US access to Chinese markets. The talks are led by US Treasury Secretary Mnuchin and trade representative Lighthizer and Chinese President’s top economic aid Liu. On Sunday, Treasury Secretary Mnuchin said he's "cautiously hopeful" that the US can reach a trade deal with China, that will avert the need for Trump to impose up to $60 BN in tariffs on China. China's foreign ministry also said that China is willing to have talks with the US to resolve differences.
India cuts surprisingly H1FY19 borrowing plan by almost 10-15%
The Indian market was also boosted by the government plans to borrow Rs.2.88 tln in H1FY19 (April-Sep’18), which is lower than previous years, a move that’s expected to check the upward movement in bond yields as shorter tenor debt addresses concerns of the bond market. The government will issue Rs.2.88 tln of bonds in H1FY19 or about 48% of its annual borrowing plan against 60-65% of total borrowing in H1FY18.
The bond sales are part of the government’s planned near-record borrowings of Rs.6.06 tln for FY19 to finance an estimated budget deficit of 3.3% of the GDP. The lower borrowing may help to ease the concern of bond market and Indian bond yields could stabilize around 7.50%, which will be also helpful for the public sector banks (PSBS) as almost 50% of their operating profit comes from their bond portfolio.
The Indian government will also issue inflation-indexed bonds linked to consumer prices, shorter maturity debt of 1-4 years and 5-9 years and proposes introducing new 2-year and 5-year benchmark bonds. The government is also in talks with the RBI on raising limits for FPIs in government-securities (bonds-GSECS).
Recently, Indian bond yields soared on concerns about excessive debt supply, a wider budget deficit, quickening inflation, surge in oil and higher global yields. India’s bonds have slumped for seven straight months, the longest stretch since 1998. The yield on benchmark 10Y government bond (GSEC) has climbed 115 bps since July to almost 7.78%, the highest among its global peers in Asia. But even after this news, 10Y bond yield closed around 7.619% on Monday, rose by another 7 bps from the Friday level.
On Monday, banks & financials surged on government’s borrowing plans and supported the overall market sentiment along with RIL, L&T, Maruti, ITC, HUL and Bharti Airtel, while Infy and OMCs were under pressure (higher oil).
Although the market may be concerned about government capex as it’s the sole driver of the Indian economy for the last few years amid subdued private capex, the government is quite confident to meet the capex (expenditure) needs without an overdraft. The government has also projected the current fiscal deficit of Rs.6.42 tln for FY18 at 3.3% of GDP against the previous estimate of 3.5% of GDP.
The Indian government will spend over Rs.1 tln of small savings to fund the fiscal deficit and have also decided to reduce bond buyback by Rs.0.25 tln. The government has also projected India as a $5 tln economy (GDP) by 2025.
But, the market sentiment may be also affected by ongoing PNB saga, growing NCLT litigations to resolve big corporate NPA, higher oil, March financial year end sale (profit booking) ahead of new rules for long-term capital gain tax effective from 1st April’18, high probability of a deficient monsoon this year and above all, stretched valuation as Q3FY18 EPS growth for Nifty was still below market estimate.
Global cues were positive during Indian market hours on Monday:
US stock future (SPX-500) was up sharply by 1.23% and European stocks were up +0.49% as concerns eased over a potential US-China trade war. It seems that a potential "Black Monday" has been averted, with global risk sentiment making a full reversal to start the week, and the precipitous selloff from Thursday and (Black) Friday turning into a furious rally on Monday, starting in Asian markets and proceeding to Europe and US stock futures as the market is not expecting a full-blown trade war between the US and China now.
Asian stocks closed mixed: Japan +0.72%, Hong Kong +0.79%, China -0.60%, Taiwan +0.15%, Australia -0.52%, Singapore -0.26%, South Korea +0.79%, India +1.44%.
China's Shanghai Composite fell to a 1-1/2 month low, although closed well above its lows, and Japan's Nikkei Stock Index rebounded from over 5 months low and closed higher on optimism the US and China can reach an agreement over trade tariffs. Shanghai Comp was also weighed by trade tensions and rising Chinese money market rates (HKD 12-month HIBOR at 9-year high). A higher USD may have also impacted the mood of the export savvy Asian market on Monday.
Asian stocks began the week mostly negative as trade concerns remained at the forefront of market focus and following last week’s losses on Wall Street, where stocks posted their worst weekly performance in over 2 years and the US market slipped into correction territory.
ASX 200 was negative with the index led lower by its largest-weighted financials sector after the harsher losses seen in its US counterparts, while Nikkei 225 fell to a near 6-month low, before staging a late rally back into positive territory.
But, KOSPI bucked the trend after news that the US and South Korea agreed in principle to a revised FTA and with South Korea to be exempted from US tariffs.
European stocks were higher across the board with the exception of the FTSE, shrugging off the negative sentiment on Wall Street and Asia dictated by looming trade disputes between China and the US. Sectors are making broad gains, healthcare was outperforming after a positive news update from Roche and energy is underpinned despite slightly softer oil prices.
But higher local currency (EUR, GBP) may have also affected the EU market sentiment along with rising probability of a “bizarre coalition” government in Italy as anti-establishment 5-Star Movement and the anti-migrant League might explore an alliance to form a government.