Tuesday 24 April 2018

Nifty skids from the day high on subdued global cues amid higher bond yields soon after TCS touched the $100 bln market cap and government squabbling over excise duty cut on fuels

Market Wrap: 23/04/2018

NSE-NF (April):10585 (-0.50; 0.00%)

NSE-BNF (April):24956 (-50; -0.20%)

SPX-500: 2670 (+0.15; +0.01%)

Market Mantra: 24/04/2018

Updated: 08:00

SGX-NF: 10550 (-35; -0.33%)

Expected BNF opening: 24865 (-0.35%)

SPX-500: 2678 (+6; +0.24%)

(Gap-down opening on muted global/US cues amid higher US/EU bond yields and plunge in commodities amid reports that the US may reconsider its sanctions on Rusal)

March-Fut (Key Technical Levels)

Support for NF:

10515/10470-10415/10380*-10340/10290-10240/10170

Resistance to NF:

10595/10615-10655/10675*-10725/10765-10815/10865

Support for BNF:

24800*/24550-24400/24250-24050/23850-23600/23300

Resistance to BNF:

25050/25275-25450*/25655-25775/25850-26050/26150

Support for SPX-500:

2660/2640-2630/2605-2595/2575

Resistance to SPX-500:

2695/2705-2720/2730-2750/2765

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

Technically, Nifty Fut-I (NF) has to sustain over 10615 for a further rally towards 10655/10675-10725/10765-10815/10865 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10595-10575 NF may fall towards 10515/10470-10415/10380-10349/10290 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 25050/24800-24550/24400-24250/24050 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 2680/2660-2630/2605 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10585; Q2FY18 EPS: 410; Q2FY18 PE: 25.82; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 24944; Q3FY18 EPS: 820; Q2FY18 PE: 30.42; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220


The Indian market (Nifty Fut/India-50) closed around 10585 on Monday, almost flat but skids from the day high of 10623 and made a low of 10551 amid subdued global cues and higher US/EU bond yields coupled with stress in metals on reports that the US may reconsider its sanctions on Russian aluminum conglomerate Rusal. The Indian market also came under intense selling pressure after TCS touched the milestone target of $100 bln market capitalization and another report that Government is not interested to cut additional excise duties on fuels.

On Monday, the Indian government virtually rejected the idea of cutting excise duties on petrol and diesel to help the consumers amid an ongoing surge in oil, hovering around $69 for WTI. The government is worried about the impact on the fiscal deficit for such action as every rupee (Rs.1) cut in fuel excise costs the government revenue of Rs.14 bln. The government has also denied that it has asked OMCs not to hike fuel priced to cushion the impact of oil price hike. The government will not advise OMCs to control price as it can’t let PSU OMCs “bleed” by asking for price controls.

The government stance on the fuel price may have mixed impact on the economy and the market. While the market may be relieved that there will be no apparent political populism with fuel prices and that is also positive for the fiscal discipline front, there will be another dilemma about increasing inflationary impact because of higher fuel prices on the economy, which is also negative for the fiscal deficit eventually. So, this is like a double whammy situation for the Indian economy regarding excessive tax components on fuels and the higher crude oil.

Also in reality, whatever the government is saying in public, it’s pressurizing the PSU OMCs internally not to hike fuel prices abruptly, keeping an eye on the forthcoming series of state elections.

In any way, Indian 10Y bond yield made a high of 7.769% on Friday amid concern of Indian fiscal discipline and higher US/global bond yields; USDINR was also upbeat on broad strength in US dollar amid ease of tensions on North Korea and US-China trade war. Subsequently, the overall market sentiment was muted, although exporters gained.

On Friday, Nifty was helped by Indusind Bank, RIL, M&M, Kotak Bank, Infy, HCL Tech, Sun Pharma, BPCL, Asian Paints, Yes Bank and others by around 58 points (41+17), while it was dragged by HDFC Bank (subdued report card) ICICI Bank, IBULLS HSG, HUL, Hindalco, ITC, L&T, VEDL, Grasim, HDFC and others by almost 36 points (28+8).

Overall on Friday, the Indian market was helped by selected PSU and private banks, automakers, techs, media, pharma, reality, consumption, energies (higher oil and earlier buzz of excise duty cuts), while dragged by financials, FMCG, metals (reports that the US may reconsider its sanction on Rusal), selected private banks and infra.

Global cues were muted during Indian market hours on Monday:

US stock future (SPX-500) was almost unchanged and European stocks edged up by 0.05% on optimism that the US and China could resolve their trade differences after US Treasury Secretary Mnuchin said he's "cautiously optimistic" of reaching an agreement on trade with China. 

Risk-on trade got some boost on reduced tensions in US-China trade war as well as US-North Korea “nuke war” on Monday. North Korea surprised the world on Saturday stating that it would immediately suspend all nuclear and missile tests scrap its nuclear test site and instead pursue peace and economic growth, a development which Trump quickly latched on.

Additionally, talk of a trip by the US Treasury Secretary Mnuchin to China also fueled hopes that the recent trade tensions between the world’s two biggest economies may be cooling off. The risk-on move was catalyzed by Mnuchin saying over the weekend that he is planning a trip to China; an indication the US is considering a truce in its trade war with China.

But, higher interest rates (bond yields) were also limiting the upside in stocks as the 10Y US bond yield climbed to a 4-1/4 year high of 2.998% and the 10-year German bund yield rose to a 2-1/4 month high of 0.639%.  European stocks were also under pressure despite weak EUR and higher bund yields and on signs of weakness in manufacturing activity after the Eurozone Apr Markit manufacturing, PMI fell -0.6 to a 14-month low of 56.0.

Asian stocks closed mostly lower despite higher USD: Japan -0.33%, Hong Kong -0.54%, China -0.11%, Taiwan -0.76%, Australia +0.29%, Singapore +0.17%, South Korea unchanged; India +0.10% (Sensex). Losses in technology stocks and suppliers to Apple weighed on Asian markets.  Apple has fallen for three straight sessions on concern about weakening global demand for iPhones after Morgan Stanley cut their forecasts for iPhone shipments by 1 million in the quarter ending in March and by 6 million for the current quarter.

Asia equity markets began the week lackluster after last Friday’s losses in the US market where all majors declined on continued tech weakness and losses in Apple amid concerns regarding iPhone demand. However, overnight pressures were contained in the Asia-Pacific region amid a further improvement of the geopolitical climate in the Korean peninsula after North Korea announced it will stop nuclear and ICBM testing, as well as begin dismantling a nuclear test site in the north of the country.

ASX 200 and Nikkei 225 were mixed with weakness in Japan the result of last week’s flows into the Yen. Elsewhere, Shanghai and Hang Seng were choppy amid a lack of drivers and a neutral position by the PBOC which injected CNY 80 bln via reverse repos to match maturing operations, although underperformance was observed in Hong Kong names.





SGX-NF


BNF


SPX-500


USDJPY


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