The Indian market is under stress Tuesday on mixed
global cues amid US-China trade war squabbling. On Monday Dow tumbled over 500
points on tech and industrials sell-off on a report that Trump may bring the
rest of the Chinese exports (around $257B) under an additional tax of 10-25% if
his planned November (G20) meeting with the Chinese President does not yield
any result. Eventually, Dow closed around
200 points down on Monday after recovering in the last trading minutes.
On early Tuesday, there was another report (trial balloon)
that in an interview (to be aired soon), Trump has “predicted a great deal”
with China on trade. In any way, being a “slave of Dow”, after nearly 10%
correction, Trump may be “nervous” of a stock market plunge ahead of the
November mid-term election and thus softening his rhetoric to have some trade
deal with China.
In line with the global
trend, the Indian market also recovered from its recent low of around 10000
levels coupled with the support of by
lower USD, lower oil and lower bond yields.
Apart from NBFC/HFC (infra and housing) crisis,
there is another crisis brewing in the form of RBI vs the government tussle
over various issues ranging from the issue of central
bank independence and alleged lack of supervision in bank’s indiscriminate
lending from 2008 including the recent ILF&S debt crisis (default and
collapse), which may be “too big to fall”.
On Tuesday, the Indian FM said: “At the time of
global economic crisis, banks lent indiscriminately, while the central bank
(RBI) looked the other way. The credit growth was 31% as opposed to a standard
14%. Now, the bank’s business/lending
models became easier with the advent of IBC. India needs to sustain a high level of economic growth”.
Clearly, the Indian NPA crisis is now a political
issue. The government is now on the damage control mission. On Tuesday, the
Indian finance ministry secretary (DEA) Garg said: “The government will stick
to fiscal deficit target for FY-19 and have 10% GDP growth in dollar terms. Policies
that government has pursued have stabilized FDI, while global events have
impacted portfolio flows. India is trying to stabilize capital inflows, while global
factors have impacted capital inflows. Have seen some withdrawal from the debt market, but the government is now trying
to stabilize inflows”.
India now badly need a resumption of FPI/FDI inflows as its USD (FX) reserve is dropping
like a “rock” to around $390B levels now. The Indian rupee (INR) also got some support
on a $75B SWAP (USD) agreement with Japan in this time of dollar crisis
(shortage). The Indian PM has to go to Japan for this SWAP agreement, but this
may be a “Band-Aid” treatment for the deep “cut”.
The USDINR may soon jump above 75-80 levels as the
US dollar index could regain its strength on the slump in EUR and GBP (German,
Italian, British political issues) coupled with weak Indian macros, the USD
shortage factor, Trump trade war rhetorics, and
a hawkish Fed, looking for a nominal US rate above the neutral (3%).
On Tuesday, PSU banks are upbeat as the government
could announce some package for MSME credit growth ahead of the election.
Updated: 11:40
Nifty-SGX-NF:
10265 (-2-; -0.20%)
Bank
Nifty-BNF: 24975 (-71; -0.30%)
USDINR-I:
73.81 (+0.10.; +0.13%)
SPX-500: 2657 (+14; +0.53%)
Fut-I (Key Technical Levels)
Support for NF:
10235/10190*-10155*/10120-10050/10000-9950/9850-9700/9650
Resistance to NF:
10290/10325*-10375*/10450-10500/10585-10625/10650-10685/10725
Near-term broad range: 9950-10450
Support for BNF:
24900*/24650-24550/24250*-24100/24000-23800/23600-23300/23150
Resistance to BNF:
25300*/25500-25700/25950*-26100/26300-26500/26650-26750/26950
Near-term broad range: 23600-25950
Support for USDINR-I:
73.45/73.00*-72.55*/72.25-72.00/71.50-71.25/70.95-70.70/70.35
Resistance to USDINR-I:
74.05/74.35*-74.75*/75.00-75.65/76.00-76.55/77.00-77.50/79.70
Near-term broad range: 73.00-75.00
Support for SPX-500:
2620*/2590-2570*/2535-2505/2490-2470/2445
Resistance to SPX-500:
2675*/2700-2715*/2735-2775/2795-2815/2845
Near-term broad range: 2570-2715
Technical
View (Nifty, Bank Nifty, USDINR-I, SPX-500):
Technically, Nifty Fut-I (NF) has to sustain over 10325 for a
further rally to 10375/10450-10500/10585-10625/10650-10685/10725 in the near
term (under bullish case scenario).
On the flip side, sustaining below 10305-10290 NF may fall to 10235/10190-10155/10120-10050/10000-9950/9850
in the near term (under bear case scenario).
Technically, Bank Nifty Fut-I (BNF) has to sustain over 25300
for a further rally to 25500/25700-25950/26100-26300/26500-26650/26750 in the
near term (under bullish case scenario).
On the flip side, sustaining below 25250 BNF may fall to 24900/24650-24550/24250-24100/24000-23800/23600
in the near term (under bear case scenario).
Technically, USDINR-I has to sustain over 73.25-73.45 for a
further rally to 74.05/74.35-74.75/75.00-75.65/76.00-76.55/77.00 in the near term (under bullish case
scenario).
On the flip side, sustaining below 73.00, USDINR-I may fall to 72.55/72.25-72.00/71.50-71.25/70.95-70.70/70.35
in the near term (under bear case
scenario).
Technically, SPX-500 has to
sustain over 2675 for a further rally to 2700/2715-2735/2775-2795/2815 in the
near term (under bullish case scenario).
On the flip side, sustaining below 2665-2650, SPX-500 may fall to 2620/2590-2570/2535-2505/2490
in the near term (under bear case
scenario).
Valuation metrics:
Nifty-50: 10200; Q4FY18 EPS: 402; Q4FY18 PE: 25.37;
Avg FWD PE: 20; Proj FY-19 EPS: 425-450; Proj Fair Value: 8500-9000
Bank Nifty: 24900; Q4FY18 EPS: 519; Q4FY18 PE:
47.98; Avg FWD PE: 20; Proj FY-19 EPS: 961-1000; Proj Fair Value: 19220-20000
(assuming NPA recovery).
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NIFTY FUT
BANK NIFTY FUT
SPX-500
US DOLLAR INDEX (DXY)
