The Indian market (Nifty Fut) closed around
10688.45 Tuesday, surged by almost +0.45% (+49.25) on hopes of US-China trade
truce, PSBS recaps by the higher amount
and an improving opinion poll in Rajasthan for BJP. The Indian market opened
around 10610.90, in negative tone and made a low of 10585, slumped by almost
-0.50% on negative global cues amid renewed concern of an all-out US-China
trade war after Trump commented late Monday he would push ahead with additional
China tariffs at 25% (from present 10%) on $200B of Chinese goods initially,
threatening another $267B, if China does not seek a trade deal with the US.
But soon after the European market opening, the
global risk-on sentiment as-well-as the Indian
market zoomed on a report that
China’s President Xi and his US counterpart Trump agree to reach mutually beneficial agreements on trade but it soon nosedived
after a China clarification that this related to the 1st Nov phone
call by Trump to Xi and nothing new and by that time, the Indian market was almost
in the closing session.
Additionally, almost at the same
time, there was another India specific news that the government may rework its
FY-19 estimates for PSU Banks (PSBS) recaps, which may be raised to Rs.80-100B
from a prior estimate of Rs.65B.
As a result, PSBS surged, helping
the overall market sentiment as additional recipes by the government may
address the issue of MSME and NBFC/HFC funding ahead of the general election.
The government is also pressurizing the RBI to let some PSBS under lending
restrictions (PCA) to lend again to “kick start” the economy. Private banks are
not so much interested to lend the MSME and NBFC/HFC sector aggressively
because of NPA risk and thus PSBS has to fund them, whatever may be the outcome
in the future. In that sense, PSBS is a victim of political populism in India.
Overall, the Indian market gained
by around 2.90% in November (till Tuesday) on the back of over 30% plunge in Brent
oil and 4.15% slump in USDINR coupled with a fall in Indian 10Y Bond yields
from 8.231% to a low of 7.669% (-56 bps) in line with global trend and some RBI/government
action. The market is now discounting no hike in Dec by RBI (dovish hold) and
the spread between RBI repo rate (6.50%) and the Indian 10Y Bond yield is now
around almost 120 bps, near to the historical average of 100 bps. But as India’s
core inflation continues to hover around elevated levels of above 6%, RBI may
be cautiously dovish.
The Indian market is also helped
by an ease of NBFC liquidity and RBI-government duet tensions. But some fall in
USDINR is also restricting a runaway Nifty rally, as almost 50% of Nifty
earnings are coming from exports, while a fall in bond yields is also positive
for Indian PSU banks as almost 50% of their EBITDA is generating from a bond portfolio.
Nifty
jumped early Wednesday on positive global cues on hopes of US-China trade truce:
On early Wednesday, Nifty jumped almost +0.35%
(+37.15) on positive global cues amid renewed hopes of US-China trade truce as
the WH CEA/NIC Kudlow clarified Trump’s Monday comments about China tariffs of
25%. Kudlow said: “Trump 'means what he says' and may hike tariffs on China if
there is no further breakthrough in talks with Xi at the G20 and Trump believes
that there is a good possibility a deal can be made with China’s Xi. Although
the White House is 'disappointed' so far in China trade talks, if China comes
to the G20 table with new ideas, there’s a good possibility Trump can make a
deal in the dinner meeting with Xi”.
But Kudlow also warned that “talks on Saturday
evening may not conclude with a statement and the White House sees Trump-Xi
meeting as a chance for Xi to change the tone and the substance of these
talks".
On early Wednesday, the overall rally in the
Indian market is quite limited after a report that there is no plan on PSB
recaps over budgeted amount this fiscal and bank-wise
quantum to be decided after evaluation of Q2 results and the recaps may be
limited to the original plan of Rs.65B; i.e. remaining Rs.42B as of now to be
done in FY-19.
Technical View (Nifty, Bank Nifty, USDINR-I):
Technically, Nifty Fut-I
(NF) has to sustain over 10785-10805 for a further rally 10875*/10905-10975/11025-11085/11165-11230/11295
in the near term (under bullish case scenario).
On the flip side, sustaining
below 10765-10725 NF may fall to 10680*/10620-10595/10550 and 10495/10450-10410/10340
in the near term (under bear case scenario).
Technically, Bank Nifty Fut-I
(BNF) has to sustain over 26550 for a further rally to 26625/26700-26900*/27200
and 27350/27550-27750/28000 in the near term (under bullish case scenario).
On the flip side, sustaining
below 26500 BNF may fall to 26450/26200- 26050*/25900 and 25700/25425-25350/25200
in the near term (under bear case scenario).
Technically, USDINR-I has to
sustain over 70.25 for a further rally to 70.75/71.15-71.85*/72.20 and
72.75/73.05-73.35/73.75 in the near term (under bullish case scenario).
On the flip side, sustaining below 70.00,
USDINR-I may fall to 69.45/69.30-68.95*/68.50 and 68.25/67.65-67.20/66.95 in
the near term (under bear case scenario).
For more:
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NIFTY FUT
BANK NIFTY FUT
USDINR FUT
OIL-WTI
