Friday, 1 June 2018

Market Mantra (Nifty Fut/Bank Nifty Fut/SPX-500): 01/06/2018

Updated: 08:20

SGX-NF: 10730 (+27; +0.25%)

Expected BNF opening: 26810 (+67; +0.25%)

SPX-500: 2711 (+6; +0.22%)

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 10775 for a further rally to 10800/10855-10875/10935-10955/10995 in the near term (under bullish case scenario). 

On the flip side, sustaining below 10755 NF may fall to 10715/10680-10635/10595-10570/10550 in the near term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 27050 for a further rally to 27150/27250-27500/27650-27975/28050 in the near term (under bullish case scenario).

On the flip side, sustaining below 27000-26950 BNF may fall to 26800/26600-26400/26150-26000/25850 in the near term (under bear case scenario).

Technically, SPX-500 now has to sustain over 2760 for a further rally to 2775/2890-2810/2835 in the near term (under bullish case scenario).

On the flip side, sustaining below 2745-2735 SPX-500 may fall to 2705/2690-2670/2650 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10736; Q3FY18 EPS: 403; Q3FY18 PE: 26.64; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 26956; Q3FY18 EPS: 807; Q3FY18 PE: 33.40; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

SPX-500: 2724; TTM Q4-2017 EPS: 111; TTM PE: 24.54

The Indian market (Nifty-I) has opened almost flat on mixed global cues, a blockbuster Q4 GDP, but the disappointed bypoll result for the BJP. Overall global cues are mixed today amid Trump’s metal tax imposition on EU and NAFTA countries and formation of a 5-SL coalition government in Italy with some compromises (without Savona, the controversial economy minister candidate, who is being seen as an extreme Eurosceptic). The market is relieved to some extent as a “political government” at this point of time is better than a “technocrat government” & an imminent election, which may be dubbed as a de-facto EUR/EU referendum.

Also, overall reaction from the EU and NAFTA countries (Canada/Mexico) against Trump’s metal tantrum is so far measured and diplomatic after the initial “fire & fury”. Thus the market is expecting some compromises may be reached before an all-out trade war.

The Indian market is also boosted by the blockbuster GDP for Q4FY18, which published as 7.7% against an estimate of 7.3%; prior: 7.0% (revised downwards from 7.2%) on Y/Y basis. Overall FY-18 GDP is now estimated at 6.7%, more or less with the market expectations. The Q4FY18 figure of 7.7% is not a great surprise because of favorable base effect in Q4FY17, which grew at 6.1% and Q1FY18 at 5.7% due to the adverse effect of DeMo and Pre-GST disruptions. Bangladesh, which is around $0.25T economy compared to India’s $3T, is also growing at around 7.3-7.5% annual rate.

In any way, a combination of higher growth around 7% and higher core inflation around 5.5% coupled with higher oil may prompt RBI for a hawkish hold stance on 7th June for signaling a possible hike in August or later. The days of an accommodative monetary policy may be over and RBI may soon change its stance from “neutral” to hawkish, considering the global QT and multiple Fed hikes. When an economy is growing around 7% with core inflation consistently above 5%, the 10Y bond yield is hovering around 8% and average corporate earnings (Nifty EPS) is growing below 10%, then something is wrong with the economy.

The result of the bypoll elections may be again signaling that regional parties may be a great headwind for 2019 general election for BJP/NAMO unlike in 2014 amid higher oil, higher inflation, jobless growth (higher unemployment/underemployment), DeMo and GST blues despite the attraction of so-called 4-D (demand/democracy/demography/deregulation). This will be not an easy cake-walk for the BJP/NAMO in 2019 general election amid various incumbency factors.

Overall the last hour rally of yesterday (Thursday) may be more of technical due to the HDFC Bank FII window factor and huge short covering in FNO scrips ahead of the June series amid tough SEBI rules for the retailers to trade in FNO scrips. The SGX-NSE issue may be another factor for the market’s headwind as MSCI is set to cap India’s global weightage. Overall, Q4FY18 corporate earnings (EPS) may be still not strong enough to justify the lofty valuations.

The ongoing Trump’s trade war may also boost up inflation due to higher duties globally including the US, which may prompt Fed and other global central banks to go for multiple hikes and bond yields will be also jumped in that scenario, negative for the overall economy and the corporate earnings/market on higher borrowing costs.






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