Friday, 18 May 2018

Market Mantra (Nifty Fut/Bank Nifty Fut/SPX-500): 18/05/2018

Updated: 08:20

SGX-NF: 10675 (-18; -0.17%)

Expected BNF opening: 26010 (-0.20%)

SPX-500: 2725 (+6; +0.22%)

Note: Flat negative opening on subdued global cues amid surging US bond yields on the concern of higher inflation amid higher oil coupled with some hawkish talks by Fed and increasing supply of US debts (treasuries). US 30Y bond yield has broken the previous technical resistance of 3.25% and made a high of 3.264% on early Friday. Similarly, the benchmark US 10Y bond yield is also consolidating above the previous resistance level of 3.05% and made a high of 3.128%.

Apart from higher bond yield (higher borrowing costs), the market is also concerned about the ultimate fate of US-China trade negotiations, currently going on in Washington. It now seems that Trump is not so much optimistic as he raised some doubts and said China "has become very spoiled on trade" despite China offered some trade package to the US to reduce the trade deficit by $200B. China has proposed to import more US agri and energy products such as soybean and LNG, aircraft and will open up more for US financials and banking services.

But, US have to also increase its production capacities of soybean and LNG substantially as it’s already exporting the majority of its excess production to China. Thus, US now more interesting to talk and make a deal on the alleged IP issues, which Trump believes could reduce the US-China trade deficits by almost $300B alone. But, China is not ready to talks about this IP issue at all as it thinks it as “Trump rhetoric”.

For the Indian market, oil (Brent crude) above $80 is an ominous signal coupled with ongoing political saga unfolding at Karnataka. All eyes may be now on the SC today. It now also seems that INC/oppositions will also approach SC for four other states, where BJP was allowed to form a government on the basis of the largest post-poll alliance rather than the largest pre-poll party/alliance theory in the Karnataka case.

The market is now concerned that such political uncertainty, “horse trading” may continue in the coming state elections as well as in the 2019 general election amid rising influence of small regional parties and a vacuum of INC in the national/state level.

The Indian market is also concerned about the political populism at the expense of state exchequer after the caretaker BJP government decided to go for the farm loan waiver in its first cabinet (?) meeting on Thursday soon after the swearing-in ceremony as par the election campaign. This may be also against the spirit of the SC’s early morning order on Thursday regarding the whole issue.

Fut-I (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 (Nifty, Bank Nifty, SPX-500):

Technically, Nifty Fut-I (NF) has to sustain over 10720 for a further rally towards 10760/10800-10875/10935-10975/11055 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10705 NF may fall towards 10625/10605-10560/10530-10485/10425 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 26350 for a further rally towards 26500/26700-26825/27000-27150/27300 in the near term (under bullish case scenario).

On the flip side, sustaining below 26300 BNF may fall towards 26150-26000 and further 25800/25600-25300/25100 in the near term (under bear case scenario).

Technically, SPX-500 now has to sustain over 2750 for a further rally towards 2775/2805-2820/2855 and further 2880-2895 in the near term (under bullish case scenario).

On the flip side, sustaining below 2740, SPX-500 may fall towards 2725/2715 and 2695/2675-2655/2625 and further 2610-2590 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10683; Q3FY18 EPS: 403; Q3FY18 PE: 26.51; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 26074; Q3FY18 EPS: 807; Q3FY18 PE: 32.31; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

SPX-500: 2720; TTM Q4-2017 EPS: 111; TTM PE: 24.50






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