Thursday, 10 May 2018

Nifty jumped on positive global cues amid higher oil and higher USD after less hawkish and conciliatory Iran approach by Trump

The Indian market (Nifty Fut/India-50) closed around 10774 on Wednesday, jumped by almost 0.36% on positive global/European cues amid higher oil and higher USD after less hawkish and conciliatory Iran approach by Trump. The Indian market was also boosted by exporters like techs on higher USDINR (at 15-month high) and some earning boost such as from ICICI Bank, which delivered a better-than-expected report card despite so many controversies over the Videocon loan fiasco and other issues.

Nifty-Fut made an opening minute low of around 10713 and late day high of 10788 after positive cues from the European market, primarily boosted by energy shares amid surge in oil in the Asian session after US Treasury Secretary pointed out that the Iran sanctions are effective immediately coupled with an unexpected inventory drawdown report from the API data.

Although a lethal combination higher oil and higher USD may not be good for the import-oriented Indian economy and the overall market, it may be good for the Nifty earnings, as almost 60% are coming from export income (techs/IT, Pharma, RIL’s export etc.)

But overall market gains were limited on a weak rupee (INR) and higher Indian 10Y bond on the concern of higher oil, current account/fiscal deficit and higher inflation. USDINR-I made a high of 67.48 on Wednesday and closed around 67.42 after suspected RBI intervention. RBI may have sold some USD around 67.45 spot prices to stem the US dollar strength and also captured some handsome profits.

After almost 1.92% slump in the last two days, Indian 10Y GSEC bond yields roared back by 1.70% on Wednesday and the 10Y bond yield made a high of 7.721%. Apart from the concern of fiscal discipline on higher oil, there was some report that the RBI is considering some changes in its bond buying (OMO) programme.

There was also another report that RBI has rejected government proposal to make the power producers out of its 1-day NPA norm as the same/12th Feb circular is “sector neutral”. But RBI has suggested certain measures also for the interest of the power producers (borrowers) and the lenders (Banks).

As par finance ministry official, the Indian government will appoint an external agency to review PSU Bank's performance on monthly basis. The government expects PSB's books to improve after 6 months and PSBS could raise funds from the market this FY. The government will not raise recaps amounts for the state-run banks (PSB). Thus PSU banks came under renewed stress.

The general market sentiment was also boosted by the record M&A deal of $16B by Wall Mart for Flipkart (77% stake), an Indian e-commerce giant, owned by Japan’s Softbank. Although Flipkart is unlisted, this deal may be positive for the Indian growth story.

Public sector oil marketing companies (OMC-refineries) were in pressure on higher crude oil (their raw materials) as they are not able to hike prices or pass on the higher crude oil prices on political populism by the government owing to a series of state elections, especially in the Karnataka, which is going for poll on 12th May.

On Wednesday, overall Indian market was supported by private banks, techs, energies, and financials, metals to some extent, while dragged by PSU Banks, automobiles, FMCG, media, pharma, consumption, MNC and infra, reality to some extent.

Global cues were positive during Indian market hours on Wednesday:

US stock future (SPX-500) was up 0.43% at a 2-week high and European stocks were up 0.16% at a 3-month high. A rally in energy stocks was boosting the overall market with a 2.58% crude oil to a 3-1/2 year high.  Crude oil has moved sharply higher since President Trump yesterday (Tuesday) said the US is withdrawing from the Iran nuclear deal and re-imposing sanctions on Iran and that buyers of Iranian crude have six months to curb their purchases or face stiff penalties.

Crude oil also moved higher after API data late Tuesday showed US crude inventories fell unexpectedly by -1.85 MB last week and some hawkish comments from US Treasury secretary Mnuchin.

Asia-Pacific stocks closed mixed on higher USD and higher oil after overnight muted cues from the US market: Japan -0.44%, Hong Kong +0.44%, China -0.07%, Taiwan +0.11%, Australia +0.26%, Singapore +0.15%, South Korea -0.46%, India +0.29% (Sensex). Asia stocks traded mixed after a lackluster close in the US as markets digested Trump’s decision to withdraw from the Iran nuclear agreement which in turn underpinned oil prices.

Australia (ASX-200) was kept afloat as energy names whipsawed on the upside/volatility in oil, although gains were limited by weakness in financials after Australia’s largest lender CBA reported earnings coupled with an ongoing investigation by the securities regulator on the interest rate manipulation scandal.

Elsewhere, Nikkei-225 failed to benefit from the Yen weakness and traded subdued, in which electricity names took a power dive on the higher input costs coupled with a slump in pharma sectors after the Takeda mega-deal.

Elsewhere, both Shanghai and Hang Seng were initially weaker after a daily net liquidity drain by the PBOC and the verbal spat between US and China envoys at the WTO. However, Chinese markets later recovered with Hong Kong leading the rebound as money market rates eased, in which the 1-month HIBOR declined for a 6th  consecutive session. Overall, Oil's bounce gave a boost to energy stocks across the region. Chinese major oil companies gained at least 2% in Hong Kong. In Australia, the energy sector rose 1%.



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