Technical & Macro Analysis Of Indian & Global Market----: Market Mantra (Nifty Fut/Bank Nifty Fut/USDINR/SPX-500): 30/10/2018

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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