The Indian market is under renewed pressure
Wednesday on record high USDINR and boiling oil despite government’s swift
intervention late Monday through the NCLT to take control of the IL&FS
management for public interest and to prevent further contagion in the whole
financial sector. The Indian government has sacked the entire IL&FS board
and appointed a new board with industry leaders and persons of impeccable global credibility in a Satyam like
operation.
The government would not infuse any fund in the
IL&FS to directly bail out the
company due to political pressure but has urged financial institutions like
SBI, LIC. HDFC to infuse funds either as loans or equity to save IL&FS,
which have almost INR 91B of debt, equivalent to India’s one month average GST
collection. In short, IL&FS is now “too
big to fall” for the Indian government and thus the government is committed for
the public interest and financial market to not let the company collapse and
default on its obligation.
But at the end of the day, IL&FS has also owed
a huge amount of Rs.91B to various banks & financial institutions and also
mutual funds. Thus banks have to take a huge haircut for its exposure to
IL&FS at some point and all these are turning into an intense political war
ahead of the general election.
The Indian government is also under pressure both
politically and economically for plunging rupee (INR) and surging oil. RBI is
also set to hike another 0.25% on 5th Oct to save rupee, everything
being equal. USDINR-I made a record high
of 73.6550 Wednesday amid higher Brent oil and US dollar index, thanks to a
plunge in EUR as a result of Italian budget tremors.
But, USDINR-I is now trading around 73.30 after a
report that RBI/government may introduce a separate FX (USD) swap window for
the Indian state oil refiners and marketing companies to ease pressure on INR
(on expected line).
Also, ease of Italian budget tensions is helping the Indian rupee on lower US dollar
index to some extent. As per reports, Italy may dials back some of its budget proposals and now may propose 2.4% budget deficit
only for 2019, and thereafter it will decline gradually by 0.2% to 2.2% in 2020
and another 0.2% the year after to 2.00% (2021 onwards).
For India, the combination of higher USDINR,
higher oil, higher bond yields (8.06% currently), higher current account deficit
all pointing towards higher borrowing costs, which would be not good for the
overall economy, corporate earnings and also political stability. India’s
budget/fiscal deficit is around 3.5% at the federal government level, while the
combined state and the federal fiscal
deficit is almost around 6%, which is set to scale 6.5% by FY-19.
The Indian current account deficit is also set to
scale 2.7% by FY-19 from 2.5%. All these are affecting India’s BOP (balance of
payment), and dragging the currency (rupee), which may touch 75-80 levels by
FY-19, combined with Trump trade war, higher US dollar index and USD shortage
(as a funding currency) for Fed’s dual QT and issuance of a deluge of debts (US
treasuries) to fund “Trumponomics”.
Trump may be also now eyeing India actively for
its next trade war candidate and could target India’s IT and pharma exports/H1B
visa abuse issues. As per Trump, India
called him asking to start trade negotiations. Trump also termed India as “tariff king” and said that India wants
to “negotiate” with the US in order to “satisfy” him. Trump may also “punish” India if it goes with Iran oil buying despite
Trump sanctions.
Updated: 11:35
Nifty-SGX-NF:
10950 (-112; -1.00%)
Bank
Nifty-BNF: 25340 (-165; -0.65%)
USDINR-I:
73.32 (+0.18; +0.25%)
SPX-500: 2932 (+4; +0.14%)
Fut-I (Key Technical Levels)
Support for NF:
10900/10880*-10820/10800*-10780/10750-10700/10640-10550/10515
Resistance to NF:
10985/11025*-11065/11105*-11125/11145-11195/11215-11260/11300
Support for BNF:
25400/25200*-25000/24900*-24650/24400-24100/24000-23800/23650
Resistance to BNF:
25575*/25675-25750/25875*-26050/26150-26250/26350-26575/26700
Support for USDINR-I:
72.30/72.00*-71.50/71.25*-70.95/70.70-70.50/69.95-69.60/69.15
Resistance to USDINR-I:
72.95/73.05*-73.35*/73.75-74.25/74.50-75.00/75.65-77.50/79.70
Support for SPX-500:
2915*/2905-2885/2860-2840/2815-2790/2750
Resistance to SPX-500:
2945*/2960-2990/3010-3035/3070-3095/3155
Technical
View (Nifty, Bank Nifty, USDINR-I, SPX-500):
Technically, Nifty Fut-I (NF) has to sustain over 11025 for a
further rally to 11065/11105-11125/11145-11195/11215-11260/11300 in the near
term (under bullish case scenario).
On the flip side, sustaining below 11005-10985 NF may fall to 10900/10880-10820/10800-10780/10750-10700/10640
in the near term (under bear case scenario).
Technically, Bank Nifty Fut-I (BNF) has to sustain over 25575
for a further rally to 25675/25750-25875/26050-26150/26250 in the near term (under
bullish case scenario).
On the flip side, sustaining below 25525 BNF may fall to 25400/25200-25000/24900-24650/24400
in the near term (under bear case scenario).
Technically, USDINR-I has to sustain over 72.30 for a further
rally to 72.95/73.05-73.35/73.75-74.25/74.50-75.00/75.65 in the near term (under bullish case
scenario).
On the flip side, sustaining below 72.00, USDINR-I may fall to 71.50/71.25-70.95/70.70-70.50/69.95-69.60/69.15
in the near term (under bear case
scenario).
Technically, SPX-500 has to sustain over SPX-500 has to sustain
over 2950-2960 for a further rally to 2990/3010-3035/3070-3095/3155 in the near term (under bullish case
scenario).
On the flip side, sustaining below 2945-2935,
SPX-500 may fall to 2915/2905-2885/2860-2840/2815 in the near term (under bear case
scenario).
Valuation metrics:
Nifty-50: 11000; Q4FY18 EPS: 402; Q4FY18 PE: 27.36;
Avg FWD PE: 20; Proj FY-19 EPS: 425-450; Proj Fair Value: 8500-9000
Bank Nifty: 25200; Q4FY18 EPS: 519; Q4FY18 PE:
48.55; Avg FWD PE: 20; Proj FY-19 EPS: 961-1000; Proj Fair Value: 19220-20000
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