The Indian market was under pressure Tuesday as it seemed that the government will not dial back the SEBI-NRI circular in its war against the “black money”. The Indian rupee is under stress on the concern of FPI/NRI outflow, higher oil, surging current account deficit coupled, higher dollar debt along with ongoing EM currency tantrum, which is a by-product of Fed’s dual QT (rate hikes and B/S tapering), deluge of US debts to fund “Trumponomics” and subsequent USD shortage as a funding currency. Also, Trump trade war stance is boosting US dollar index, affecting the rupee (INR).
The market may be also concerned that after Fed, the ECB is going to put the 24/7 money tap off after Dec’18 (full ECB QE tapering) and after some rate hikes in 2019-20, it will also taper its B/S like Fed and thus we may also see the EUR shortage (as a funding currency) like present USD shortage. The EM universe, especially oil imported ones are vulnerable to such currency turmoil and India imports almost 80% of its oil requirement.
As a result of weaker rupee, the imported inflation will surge further causing higher Indian bond yields, higher dual deficits (fiscal as-well-as current account) and RBI may compel to hike in order to maintain an average spread of 1% between RBI repo rate and the 10Y bond yield, which is now hovering around 8% against RBI repo rate of 6.50%. Thus, at Indian GDP around 8%, bond yield around 8% and core inflation above 6%, as per textbook, RBI may hike another 0.25-0.50% by FY-19.
Although Nifty is an export-heavy index to some extent as almost 50-60% of Nifty earnings are coming from exports, weaker INR will be good for Nifty, while for the broader India, it's bad as it is an import-oriented economy.
Higher Indian bond yields, higher bank interest rate; i.e. higher borrow costs may squeeze corporate earnings and will add to the stress of India’s twin B/S (corporates as-well-as banks), despite some green shoots in the Indian economy and political stability.
The Indian service PMI for August plunged to 51.5 from prior 54.2, which may be an indication that Q2 GDP surge above 8% may be an aberration. The August Composite PMI tumbled to 3-month low to 51.9 against 54.1 in July.
Updated: 10:55
Nifty-SGX-NF: 11540 (-32; -0.28%)
Bank Nifty-BNF: 27530 (-85; -0.31%)
SPX-500: 2897 (-1; -0.04%)
Fut-I (Key Technical Levels)
Support for NF:
11520/11500*-11475/11445-11400/11345-11315/11280
Resistance to NF:
11580/11600*-11650/11680-11725/11775-11800/11820
Support for BNF:
27400*/27300-27200/26850-26700/26600-26400/26150
Resistance to BNF:
27850*/28000-28100/28200-28350/28450-28550/28685
Support for USDINR-I:
70.75/70.40-70.10/69.90-69.65/69.35-69.05/68.85
Resistance to USDINR-I:
71.50/71.80-72.00/72.25-72.55/72.75-73.00/73.25
Support for SPX-500:
2880*/2860-2845/2830-2810/2800-2790/2770
Resistance to SPX-500:
2910/2925*-2940/2960-2990/3010-3035/3070
Technical View (Nifty, Bank Nifty, USDINR-I, SPX-500):
Technically, Nifty Fut-I (NF) has to sustain over 11600 for a further rally to 11650/11680-11725/11775-11800/11820 in the near term (under bullish case scenario).
On the flip side, sustaining below 11580 NF may fall to 11520/11500-11475/11445-11400/11345 in the near term (under bear case scenario).
Technically, Bank Nifty Fut-I (BNF) has to sustain over 27850 for a further rally to 28000/28100-28200/28350-28450/28550 in the near term (under bullish case scenario).
On the flip side, sustaining below 27800-27500 BNF may fall to 27400/27300-27200/26850-26700/26600 in the near term (under bear case scenario).
Technically, USDINR-I has to sustain over 70.85 for a further rally to 71.50/71.80-72.00/72.25-72.55/72.75 in the near term (under bullish case scenario).
On the flip side, sustaining below 70.75, USDINR-I may fall to 70.40-70.10/69.90-69.65/69.35-69.05/68.85 in the near term (under bear case scenario).
Technically, SPX-500 has to sustain over 2925 for a further rally to 2940/2960-2990/3010-3035/3070 in the near term (under bullish case scenario).
On the flip side, sustaining below 2915-2905 SPX-500 may fall to 2880/2860-2845/2830-2810/2800 in the near term (under bear case scenario).
Valuation metrics:
Nifty-50: 11495; Q4FY18 EPS: 402; Q4FY18 PE: 28.59; Avg FWD PE: 20; Proj FY-19 EPS: 425; Proj Fair Value: 8500
Bank Nifty: 27350; Q4FY18 EPS: 519; Q4FY18 PE: 52.70; Avg FWD PE: 20; Proj FY-19 EPS: 961; Proj Fair Value: 19220
SPX-500: 2897; TTM Q4-2017 EPS: 111; TTM PE: 26.10
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NIFTY-SGX-NF
BANK NIFTY-BNF
CRUDE OIL-WTI
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