Updated: 08:20
SGX-NF: 10620 (+12; +0.11%)
Expected BNF opening: 25960 (+0.15%)
SPX-500: 2730 (+17; +0.63%)
Note: Flat/positive opening on upbeat global cues amid
a temporary truce in US-China trade war and domestic issues of Karnataka
election outcome (floor test on Saturday), in which BJP succumbed.
Globally, risk-on trade got a boost after US Treasury
secretary Mnuchin said: “The US is putting the trade war on hold' with China
and administration will delay tariffs”. Mnuchin said that the US and China are
stepping back from a possible trade war after two days of intense trade
negotiations that produced “meaningful progress.”
Despite not getting China to agree to trim its
overall trade surplus with America by a specific amount, Mnuchin said the US
team did get a number of “commitments” on a “framework” for reducing the
deficit over time, including big increases in purchases of farm products and a
doubling of purchases of US energy products. The planned tariffs on
Chinese steel and aluminum, as well as $150 billion worth of other Chinese
goods — are off the table while the talks proceed, Mnuchin said: “We’re putting
the trade war on hold,” Mnuchin said on Sunday.
As a recapitulation on Saturday, after day of “tensed”
trade talks, US and China announced that “after two days of constructive talks
between American and Chinese officials in Washington had led to an agreement
for China to buy more goods and services, including meaningful increases in the
United States agriculture and energy
exports” as the two countries work to defuse a potential trade war. China to
buy 'significantly' more US goods and services in a bid to ease trade tensions, a statement by both countries
indicates.
The announcement comes after Kudlow said Friday
that China had agreed to purchase at least $200 billion in more goods and
services, which could help reduce the $375 billion trade deficit with China
that has drawn Trump's ire. But China had not confirmed that number and Saturday’s statement did not reference
a specific additional trade amount.
But Indian market may be on edge after the fall
out in Saturday’s Karnataka Assembly floor test, in which the BJP CM, who was
selected by the Governor barely two days ago,
has resigned abruptly just before the floor test as he has not the required
numbers, because of SC directive to hold the floor test immediately rather than
15-days later. It appears that BJP was not able to buy sufficient “horses”
(opponent MLAs) in such short time and under the watch of the SC.
Now, JDS+INC will form the Karnataka government.
This may be a huge embarrassment for the BJP/NAMO at the national level and
also tarnished their overall image as the party is now relying on money &
muscle power (“horse trading”) for state elections, where they have not the
sufficient strength of their own to form the government.
But the market will be more concerned about the
rise of smaller but stronger regional parties and INC’s change of strategy to
support them to form the regional/state governments rather than of their own,
where they have not the sufficient number of their own. Those smaller regional
parties may ultimately support INC (RAGA) at the national level in the 2019
general election and thus there may be an intense
fight unlike in 2014 when “Modi wave”
(anti-establishment wave) swept the whole country.
The political uncertainty of smaller regional
parties in the absence of a strong BJP/NAMO wave coupled with some resurgence
of INC/RAGA at the national level may be a significant headwind for the Indian
market in the coming days; it will be BJP vs “Federal Front” (all the other
regional parties including INC) in the 2019 general election. Despite NAMO’s mantra
of 4-D (demand, demography, democracy, deregulation), the market may be worried
about the political fallout of DeMo, GST,
jobless growth, higher inflation and higher oil.
Fut-I (Key Technical Levels)
Support for NF:
10605/10560*-10530/10485-10425/10395-10335/10260
Resistance to NF:
10675/10695-10720*/10760-10800/10875-10935/10975
Support for BNF:
26000*/25800-25600/25300-25100/24950-24700/24600
Resistance to BNF:
26150/26350*-26500/26700-26825/27000-27150/27300
Support for SPX-500:
2715/2695*-2675/2655-2625/2610
Resistance to SPX-500:
2740/2750*-2775/2805-2820/2855
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 10695-10675 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 26200-26350
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 26150-26000 BNF may fall towards 25800/25600-25300/25100-24950/24700
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: 10596; Q3FY18 EPS: 403; Q3FY18 PE: 26.29;
Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360
Bank Nifty: 25876; Q3FY18 EPS: 807; Q3FY18 PE: 32.06;
Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220
SPX-500: 2713; TTM Q4-2017 EPS: 111; TTM PE: 24.44
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