The Indian market (Nifty Fut/India-50) closed around 10735 on Tuesday, edged down by almost 0.05% on subdued global cues amid Iran nuke deal “suspense” by Trump and pressure on the Indian currency Rupee (INR).
The Indian market opened in an upbeat mode (gap-up) on mixed global cues as Trump will announce his decision of the Iran nuke deal coupled with some fall in Indian 10Y bond yields after RBI intervention (OMO) on Monday and a better prospect of BJP in the Karnataka election. Although a combination of higher USD and higher oil is bad for the import-oriented Indian economy, the higher USD may be good for the Nifty earnings as almost 60% are export-heavy.
The Indian market opened around 10755 on Tuesday and made an opening minute high of 10767, but soon after that, it slips to the day low of 10680 as USDINR-I soared to almost 67.44 on strength in US dollar index, surging oil around $70. But the concern of current account/ fiscal deficit eased to some extent after data shows that Gold import plunged by 39% on weak consumer demand amid higher prices.
Also, the Indian market recovered quite swiftly from the day low in the last hour of trading as INR recovered, thanks to the suspected RBI intervention. USDINR-I closed around 67.23, edged down by almost 0.11%. The market is apprehending that both INR and oil will stay around $70 in the coming days and under such scenario, India’s rating may be reviewed downwards. The government is, on the other hand, has indicated that if Brent oil stays above $75 for more than a month, it may cut additional excise duty on retail prices of gasoline (petrol and diesel) to ease the impact of inflation.
Indian 10Y GSEC bond yield slumped by 0.52% to 7.582% on Tuesday, following 1.37% plunge on Monday after RBI intervention (OMO-Indian version of QE/bond buying), which helped PSU banks immensely as almost 50% of their operating profit is dependent upon the bond portfolio. As a reminder, higher bond yields; i.e. lower bond prices will affect their MTM for the bond portfolio.
USDINR spot made a high of around 67.40 on Tuesday and is now hovering around the 52-week high of 67.47. Apart from ongoing EM currency bloodbath for a hawkish Fed and multiple rate hikes, the market is concerned that USDINR may soon try to capture the 70 level ahead of the Indian general election in early 2019. History shows that USDINR soared significantly ahead of each Indian general election, most probably to fund the unaccounted expenses in the election by major political parties.
Indian policymakers have also recently tried to jawbone the currency by saying that USDINR around 64 is not an ideal exchange rate to promote export, whereas 67 may be more appropriate.
On Tuesday, Nifty was supported by ICICI Bank (32 points in Nifty on better than expected Q4 report card), HPCL, SBI, Axis Bank, TCS, IOC, Eicher Motors, Power Grid, BPCL, Grasim and others by almost 60 points (53+7), while dragged by L&T, Infy, HDFC, HDFC Bank, M&M, RIL, Indusind Bank, Yes Bank, Bajaj Fin, Tata Motors and others by almost 53 points (42+10) cumulatively.
Overall, on Tuesday Indian market was helped by banks and financials, reality, OMC (some fall in oil ahead of Trump’s Iran announcement), while dragged by automobiles, FMCG, Techs, media, metals, pharma, consumption, infra, and MNC.
Global cues were negative during Indian market hours:
US stock future (SPX-500) was down 0.34% and European stocks were down 0.58% as crude oil falls 1.34% before President Trump's decision on the Iran nuclear deal. As a reminder, President Trump said he will announce his decision on Tuesday, whether the US will reimpose sanctions on Iran, which would curb crude exports from OPEC's third-largest member.
European stocks also fell despite fall in EURUSD at a 4-1/4 month low on heightened Italian political saga after Italy's anti-establishment 5-Star Party and the League rejected the idea of a non-partisan prime minister (bizarre coalition government) and called for new elections in July.
Asian stocks closed mostly higher: Japan +0.18%, Hong Kong +1.36%, China +0.79%, Taiwan +0.82%, Australia +0.12%, Singapore +0.29%, South Korea -0.28%, India +0.02% (Sensex). Asia equity markets traded mostly positive following a similar performance on overnight US market, where all 3 majors closed in the green but off best levels after a late retreat in crude, while mixed Chinese trade data and a looming Trump announcement on the Iran agreement has also kept upside in the region contained.
China's Shanghai Composite rose to a 3-week high after China April imports rose more than expected, a sign of stronger domestic consumption. Also, China said Liu He, President Jinping's top economic adviser, will visit Washington next week for follow-up trade talks with US Treasury Secretary Mnuchin.
ASX-200 is positive with gains led by strength in the largest weighted financials sector. Elsewhere, Nikkei-225 shrugged off a firmer currency and conformed to the overall risk appetite, while Hang Seng and Shanghai outperformed with healthcare and financials front-running the gains despite further liquidity inaction and another consecutive net neutral position by the PBOC on Tuesday.