Wednesday, 25 April 2018

Nifty jumped on positive global cues and further helped by earnings and R-Jio optimism

Market Wrap: 24/04/2018

NSE-NF (April):10521 (+36; 0.34%)

NSE-BNF (April):25019 (+72; +0.29%)

SPX-500: 2635 (-36; -1.34%)

Market Mantra: 25/04/2018

Updated: 08:25

SGX-NF: 10590 (-31; -0.30%)

Expected BNF opening: 24940 (-0.30%)

SPX-500: 2631 (-5; -0.18%)

(Gap-down opening on muted global/US cues amid higher US/global bond yields and a slump in tech/FANG shares on renewed data privacy woes of Facebook and mixed set of earnings from Wall Street)

March-Fut (Key Technical Levels)

Support for NF:


Resistance to NF:


Support for BNF:


Resistance to BNF:


Support for SPX-500:


Resistance to SPX-500:


Technical View (Positional-Nifty, Bank Nifty, SPX-500):

Technically, Nifty Fut-I (NF) has to sustain over 10675 for a further rally towards 10725/10765-10815/10865-10925/11015 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10655-10615 NF may fall towards 10540/10515-10470/10415-10380/10340 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25275 for a further rally towards 25475/25655-25775/25850-26050/26150 in the near term (under bullish case scenario).

On the flip side, sustaining below 25225-25175, BNF may fall towards 24900/24800-24550/24400-24250/24050 in the near term (under bear case scenario).

Technically, SPX-500 now has to sustain over 2705 for a further rally towards 2730/2750-2765/2785 in the near term (under bullish case scenario).

On the flip side, sustaining below 2695, SPX-500 may fall towards 2680/2650-2630/2610 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10614; Q2FY18 EPS: 410; Q2FY18 PE: 25.89; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 25042; Q3FY18 EPS: 820; Q2FY18 PE: 30.54; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

The Indian market (Nifty Fut/India-50) closed around 10621 on Tuesday, jumped by almost 0.34% on positive global cues and further helped by earnings optimism led by RIL and HDFC Bank. The index heavyweight, RIL was also boosted by R-Jio’s telecom subscribers’ additions to a new record for March despite some confusion regarding its accounting principle.

As a result, Nifty Fut made a day high of 10635 after making a session low of 10568 and Nifty spot closed above 10600 for the first time since Feb’18 and made 11-weeks closing high. The 3.6% rally in RIL alone helped the benchmark index (Nifty) by almost 29 points.

Although higher crude oil and higher Indian/global bond yields were negative for the Indian market, the market seemed to have ignored the negative macroeconomic development and preferred the stable Q4 corporate earnings so far. But pressure on metals and tech shares have also affected the market sentiment on Tuesday. Metals were under pressure on a report that the US may reconsider Rusal sanction under certain conditions. Techs (IT) were under stress after reports that US may not allow spouses of H1B visa holders in the US, who has gone there for contractual work.

Indian 10Y bond yield was hovering around 7.75%, which is negative for the PSU bank’s huge bond portfolio amid increasing MTM loses and thus PSU banks came under renewed selling pressure. USDINR was also hovering around 66.60, at multi-months high and affecting the overall macroeconomy and the market, but it may be positive for the Nifty earnings as almost 60% of that came from exporters.; i.e. Nifty is also an export-heavy index.

But banks were also being supported by the buzz of extension of resolution period from present 180 to 360 days under IBC/NCLT process with “withdrawal” facility after NCLT admission. Banks were also being helped by the “fear psychosis” of several “stressed” firms and so-called willful corporate defaulters, who are now offering the banks for quick one time settlements of their debts as a result of IBC/NCLT process. Clearly, the earlier trend is reversed now as defaulter promoters/companies are now running behind the banks for NPA settlement rather than the banks running after them.

But the market may be also concerned about increasing litigations in the NCLT process, which may eventually discourage the angel investors from bidding Indian stressed assets aggressively. Also, there is a serious concern of mass unemployment as a result of corporate deleveraging in addition to spillover effect from earlier DeMo and GST blues.

On Tuesday, Nifty was helped by RIL, HDFC Bank, ICICI Bank, L&T, Yes Bank, M&M, Bajaj Fin, ONGC, ITC, IOC and others by around 81 points (68+13), while it was dragged by Infy, Hindalco, HCL Tech, VEDL, TCS, Tech-M, Wipro, SBI, Tata Steel, Tata Motors and others by almost 47 points (42+5) altogether.

Overall on Tuesday, the Indian market was helped by private banks, financials, automakers, FMCG, pharma, reality, consumption, energies (higher oil) and infra, while it was dragged by techs, media, metals, PSU banks.

Global cues were positive during Indian market hours on Tuesday:

US stock future (SPX-500) was up by 0.58% and European stocks edged up by 0.02% at a 2-1/2 month high as global government bond yields softened to some extent.  Also, technology stocks recovered from their 3-day steep decline led by a gain in SAP amid an upbeat guidance. In addition, strength in energy stocks was giving the overall market a boost with crude oil/WTI up 0.71%. But, overall gains in the European stocks were limited after the German April IFO business confidence fell more than expected to a 1-1/4 year low. A higher EUR was also negative for the European market on Tuesday.

Asian stocks closed mixed amid higher USD and oil, but lower metals: Japan +0.86%, Hong Kong +1.26%, China +1.99%, Taiwan -1.10%, Australia +0.60%, Singapore +0.14%, South Korea -0.64%, India +0.48% (Sensex).

China's Shanghai Composite climbed to a 1-week high on signs the government may ease its tightening (deleveraging) campaign to boost domestic growth.  In a statement released by state media following a Politburo meeting led by Chinese President Xi, the Chinese government mentioned the need to boost domestic demand for the first time since 2015 and dropped a reference to deleveraging on concern trade and debt risks could hit economic growth. 

Chinese stocks also soared following an overnight report from the China Securities Journal that liquidity tightening in China may ease while fiscal spending will increase in the days ahead; speculation of further easing from China re-emerged with subsequent similar reports of RRR cuts amid increasing trade tensions with the US.

Chinese stocks lead Asian indexes higher after Monday’s Politburo meeting and state-backed newspaper commentary signaled liquidity conditions will improve. As noted above, China roared higher amid press reports that China has further room to cut RRR and is likely to ease liquidity tension this week.

The MSCI Asia Pacific index advanced 0.4%, with Rusal shares rising by around 30% in Hong Kong on hopes of sanction relief, while the blue-chip energy and property names led the upside in the Hang Seng. Still, there remained pressure on technology shares in Asia after a slew of companies reported disappointing earnings. The Philadelphia Semiconductor Index is down more than 7% over the past four days.

Asia-Pacific stock markets were mostly in the green with an improvement in tone seen in comparison to the overnight lackluster US performance where rising yields and declines in basic materials dampened sentiment. ASX- 200 traded positive, supported by gains in financials and energy names.

Elsewhere, Shanghai and Hang Seng outperformed after a mild net liquidity injection by the PBOC, as well as press reports that China has further room to cut RRR and is likely to ease liquidity tension this week. Furthermore, Rusal shares rose by around 30% in Hong Kong on hopes of sanction relief, while the blue-chip energy and property names led the upside in the Hang Seng.

Japanese stocks moved higher, led by a rally in exporters after USDJPY climbed to a 2-1/4 month high, which boosts exporters' earnings prospects.

European stocks opened on the back foot, but have seen rebounded in the green amid relatively light news flow. Looking at the sectors, energy names were outperforming amid the rise in oil prices, but telecom names lag behind with Telenor, weighing on the sector following weak report card. FTSE-100 (UK) was boosted by a weak GBP.





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