Tuesday, 17 April 2018

Nifty soared on positive global cues amid Syrian relief and hopes of RBI relief on NPA/NCLT provisions, rate cuts, and a normal monsoon

Market Wrap: 16/04/2018

NSE-NF (April):10545 (+55; +0.53%)

NSE-BNF (April):25539 (+120; +0.48%)

SPX-500: 2678 (+22; +0.81%)

Market Mantra: 17/04/2018

Updated: 08:00

SGX-NF: 10535 (-11; -0.10%)

Expected BNF opening: 25300 (-0.10%)

SPX-500: 2686 (+4; +0.16%)

(Flat opening on positive global cues amid Syrian relief rally, US & Japanese political jitters and mixed China economic data/GDP/IIP/Retail sales amid ongoing trade war tensions with the US)

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 10575 for a further rally towards 10610/10635-10675/10725-10765/10815 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10555 NF may fall towards 10490/10450-10400/10350-10280/10260 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25500 for a further rally towards 25655/25775-25850/26050-26150/26300 in the near term (under bullish case scenario).

On the flip side, sustaining below 25450-25350, BNF may fall towards 25150/25050-24950/24800-24600/24400 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 2675/2645-2630/2605-2580/2545 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10528; Q2FY18 EPS: 410; Q2FY18 PE: 25.68; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 25321; Q3FY18 EPS: 820; Q2FY18 PE: 30.88; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

The Indian and global market story on 16/04/2018:

The Indian market (Nifty Fut/India-50) closed around 10546 on Monday, soared by almost 0.53% on positive global cues amid Syrian relief rally and hopes of RBI relief for NPA/NCLT provisions, rate cuts and a normal monsoon this year. Nifty-I made an opening minute low of 10431 and a closing session high of 10549 in a late day rally amid a day of moderate volatility. FMCG, automobiles, housing finance companies cheered the buzz of a normal monsoon.

On Monday, IMD forecasts normal monsoon (97% of long-term average) for 2018 with a very low probability of a deficit. Thus India is getting a normal monsoon for the 3rd consecutive year despite some threat of La-Nina/neutral IOD conditions currently and a high probable El-Nina condition during the monsoon season. Monsoon rain may swing 5% in either way from the forecast. In 2017, the Indian monsoon was around 95% of long-term average.

“The country is likely to see normal monsoon rains, though there’s a threat from an anomalous warming in the Indian Ocean”, the India Meteorological Department (IMD) said on Monday.

As par reports, the Indian government is exploring the possibility of some NPA provisions relief for the MSME sector under NCLT rules. After DeMo and GST blues, stringent NCLT/NPA rules may be another disruption for the MSME sector, which have a huge contribution for the employment and the government, is concerned that due to stringent NPA/NCLT resolution issues, many MSME may force to shut down abruptly, causing mass unemployment in the economy.

Thus the government does not want to take any “unemployment” risk, especially in the election year and may extend an additional time by another 180 days for NCLT resolution over the prescribed 180-day limit. Also, the relaxation of 1-day default period of NPA is under active discussion. Banks, especially the public sector banks may benefit from this as it will delay the NPA provisions. The government will have to provide less capital (recaps) to the public sector banks also.

Meanwhile, the Indian government is quite confident that the economy will clock GDP growth of around 7.5% in FY-19 and 9% (8.5-9.5%) average growth by 2018-2022. The market also got some boost after Surjit Bhalla, an influential member of the Prime Minister’s Economic Advisory Council said that although the RBI continues to be in a wait and watch mode as its top priority is to keep inflation under check, improving economic fundamentals may lead to rate cuts in the months ahead.

Meanwhile, data shows that Indian WPI inflation for March edged down to 2.47% from 2.48% against an estimate of 2.58% on Y/Y basis on lower food but higher fuel inflation, while WPI manufacturing inflation also edged down to 3.03% from 3.04%. The lower WPI inflation may have also boosted the market sentiment on Monday.

Elsewhere, an analysis of the Business Optimism Index in the country conducted by Dun and Bradstreet reveals that the business sentiment is down owing to trouble at leading banks and clampdown on certain lending practices.; in brief recent spate of Bank frauds has affected the Indian business sentiment significantly.

Although overall resolution process at NCLT for the big corporates is still mixed, the market is getting some support as banks are on the way to recover Rs.77 bln from 6 big NPA cases out of the first tranche of “dirty dozen” list sent by RBI. The companies are Amtek Auto, Electrosteel, Monnet Ispat, Bhusan Power, Bhushan Steel and Binani Cement.

Thus Indian market soared on Monday for various factors such as NPA provision relief, hopes of normal monsoon, big NCLT resolution, and change in IBC/NCLT rules coupled with Syrian relief rally.

The US has added India to its currency manipulation watch list:

But there was another headwind in the form of US accusations for the currency manipulation as India is added to the watch list in US currency manipulation report. The semi-annual US Treasury Department report on currencies was released late Friday. Although no country was named as a currency manipulator India was added to the watch list that already includes China, Germany, Japan, and South Korea.

Although the report is itself “toothless”, however, this report might be an early sign that the trade dispute from the US (Trump) could open up a new front on India despite “ the hug politics” from NAMO:

"India increased its purchases of foreign exchange over the first three quarters of 2017. Despite a sharp drop-off in purchases in the fourth quarter, net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2 percent of GDP".

"India has a significant bilateral goods trade surplus with the United States, totaling $23 billion in 2017, but India's current account is in deficit at 1.5 percent of GDP and the exchange rate is not deemed to be undervalued by the IMF," the report said.

"Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary."

It may be worth to note that in 1975, USDINR was around 7.00, equivalent to USDCNY currently around 6.50; USDINR is currently around 65, almost 10 times devalued against Chinese Yuan and a great source of imported inflation as the country imports almost 80% of its crude oil requirement.

On Monday, Nifty was helped by HDFC, ITC, HDFC Bank, Kotak Bank, L&T, TCS, Cipla, Maruti, M&M, Grasim and others by 87 points, while dragged by Infy (poor report card), Tata Motors (buzz of Job cuts at JLR-UK) SBI, RIL, Wipro, ICICI Bank, ONGC, Titan, VEDL, Gail and others by around 33 points cumulatively.

On Monday, overall Indian market was helped by selected private banks (HDFC twins and Kotak), financials, automobiles, FMCG (hopes for normal monsoon), media, selected metals, pharma, reality, consumption, infra, while dragged by public sector banks, selected techs, and energies (lower oil).

On Monday, global cues were mixed during the Indian market hours:

US stock future (SPX-500) was up by 0.62% and European stocks were edged down by 0.13% on higher EUR amid that speculation there will be no retaliation by Russia to the US, French, and UK airstrikes and missile attacks against Syrian chemical weapons installations late Friday night. Crude oil and government debt prices tumbled on reduced safe-haven demand as no immediate fall-out was expected from the weekend strikes on Syria from Russia.

The 10Y US bond yield rose to a 3-week high of 2.86% and the German 10Y bund yield rose to a 3-week high of 0.55%. US ambassador at UN, Haley said Sunday that US Treasury Secretary Mnuchin will announce new sanctions on Monday against Russia that "go directly to any sort of companies that were dealing with equipment" related to Syria's chemical weapons program. But later Trump dialed back his Russian sanction rhetoric also.

Asian stocks closed mixed: Japan +0.26%, Hong Kong -1.60%, China -1.53%, Taiwan -0.10%, Australia +0.21%, Singapore -0.12%, South Korea +0.10%. Lower USD was and renewed US-China trade war tensions also dragged the Asian market sentiment on Monday.

Chinese stocks closed lower, led by losses in bank stocks, after reports that the PBOC may remove the current ceiling for commercial banks' deposit interest rates, which could cause the net interest margin (NIM) at banks to narrow and reduce their profits.

Asian stocks traded with a mixed tone as focus centered on air strikes on Syria over the weekend and Chinese data. The anticipated US-led response on Syria finally took place on late US Friday, which was seen as somewhat of a slap on the wrist as the US decided to hit only 3 targets against the earlier “estimate” of 8 and with the wave of strike action already declared to be over within 40 odd minutes; it was a very short and “one-shot” action.

As such, US equity futures gapped higher at the open, while ASX 200 and Nikkei 225 were also in the green as fears of an escalation subsided. Conversely, Shanghai and Hang Seng were negative following the miss on Chinese lending data last week and with Tuesday’s Chinese GDP adding to the risk factors, while the PBOC also announced to raise the 14-day reverse repo rate by 5 bps which were in-line with the hikes seen in money market rates in reaction to the March Fed hike.

But, this PBOC action saw an increase in money market rates in Hong Kong, while underperformance was led by Rusal which tumbled over 20% after the US announced to impose further Russian sanctions.

Japan was also under some pressure on increasing political jitters of Abe & Co. Markets are concerned about the series of scandals plaguing Abe could lead to his early resignation, putting the future of Abenomics, and the BOJ's QE in jeopardy. The approval rating for Abe fell to a record low of 26.7% in a survey published Sunday. He’s been forced to repeat denials of involvement in scandals as thousands called for his resignation in a protest.

European stocks opened mixed on Monday, following the mixed tone from the Asia-Pacific session as investors remain wary of potential escalating tensions regarding Syria. The anticipated US-led response on Syria finally took place on Saturday, which was seen as somewhat “symbolic and muted”. A higher EUR and GBP was also negative for the European/UK stocks. Energies dragged as oil tumbled, but pharma was upbeat amid M&A buzz.





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