Monday 5 November 2018

Market Mantra (Nifty Fut/Bank Nifty Fut/USDINR/SPX-500): 05/11/2018

Updated: 12:30

The Indian market (Nifty Fut) slumped Monday on subdued global cues amid US-China trade war/truce and political tensions ahead of the US election. Also, rebound in USDINR is affecting the Indian market sentiment after an upbeat US NFP report and higher wage growth data on Friday coupled with European geopolitical jitters and ongoing Italian budget aftershocks.

The recent slump in oil helped the Indian market apart from fall in USDINR and upbeat global cues on Friday amid hopes of US-China trade truce. Looking ahead oil may also surge after the US midterm election amid Iran sanction implementation. Iran waivers granted to eight countries including India could be only temporary. Trump waiver was one of the causes of recent oil slump as Trump is going soft on his Iran narrative to keep oil down ahead of the midterm election.

But overall the Indian market is under stress amid ongoing “war of words” between the RBI and the government, which is far from over. The government is now basically pressurizing the RBI to bail out the NBFC/HFC and also transfer the central bank’s “excess profits” to transfer to it to fund the growing fiscal deficit.

In brief, RBI’s independence maybe now at serious question mark as the central bank is on the “calibrated tightening” mode in line with the Fed/growing chorus of global QT. Ahead of the election, the government wants RBI to be “accommodative” to support credit “growth” without any need for “price stability” (inflation control). All focus is now on the RBI-MPC, whether they will continue under such political pressure or put their papers in protest.

On the positive side, the October service PMI surged to 52.20 from the prior slump of 50.9, boosted by stronger orders and accompanied by a slower increase in both input costs and prices charged. This, in turn, helped overall economic activity and encouraged firms to accelerate hiring at the fastest pace in six months. Higher USDINR also helped as most of the Indian service sectors are export-heavy.

Overall, the October Indian composite PMI jumped to 54.0 from 51.6 sequentially, led by stronger services activity and better-than-expected growth in manufacturing, with employment rising at its quickest rate in nearly 8.5-years. But companies are cautious about growing geopolitical uncertainties.

As per Markit: “Cost pressures faded in October. At the same time, a robust expansion in workforces – one of the best seen for over seven-and-a-half years – added to firms’ expenses. The waning of cost inflation, coupled with competitive pressures, resulted in only a marginal uptick in charges. Some firms said the tougher competition was preventing them from lifting their prices. Weaker cost pressures, alongside a decline in oil prices, may prevent inflation from shooting above the RBI’s medium-term target of 4%”.

“A positive outlook is by no means assured, however. With business expectations about future activity dropping to the lowest for 20 months in the manufacturing and service sectors, firms are becoming more guarded in the face of growing uncertainties. The sustainability of current market conditions and political worries both weighed on optimism and pose downside risks to growth”.

Nifty-SGX-NF: 10525 (-50; -0.46%)
                                                                 
Bank Nifty-BNF: 25685 (-65; -0.25%)

USDINR-I: 73.22 (+0.58.; +0.80%)

SPX-500: 2719 (-5; -0.20%)

Fut-I (Key Technical Levels)

Support for NF:

10495*/10440-10390*/10350-10300/10270-10240/10190-10130/10100

Resistance to NF:

10580*/10600-10660*/10705-10750/10805-10840/10875-10905/10995

Near-term broad range: 10000-10705

Support for BNF:

25700/25450-25250/25100-24900/24650-24450/24250-24000/23800

Resistance to BNF:

25875/25950-26150/26300-26500/26700-26900/27200-27350/27750

Near-term broad range: 24250-25875

Support for USDINR-I:

73.00/72.55*-72.15/71.55-70.90/70.45-70.00/69.70-69.30/69.00

Resistance to USDINR-I:

73.50/73.75*-74.05/74.35-74.75/75.00-75.65/76.00-76.45/77.00

Near-term broad range: 72.55-76.45

Support for SPX-500:

2715/2700*-2680/2650*-2620/2590-2570/2535-2520/2470

Resistance to SPX-500:

2755/2780*-2810/2825*-2855/2880-2905/2925-2945/2960

Near-term broad range: 2570-2780

Technical View (Nifty, Bank Nifty, USDINR-I, SPX-500):

Technically, Nifty Fut-I (NF) has to sustain over 10600 for a further rally to 10660/10705-10750/10805-10840/10875-10905/10995 in the near term (under bullish case scenario). 

On the flip side, sustaining below 10580 NF may fall to 10495/10440-10390/10350-10300/10270-10240/10190 in the near term (under bear case scenario).

Technically, Bank Nifty Fut-I (BNF) has to sustain over 25875 for a further rally to 25950/26150-26300/26500-26700/26900-27200/27350 in the near term (under bullish case scenario).

On the flip side, sustaining below 25825-25775 BNF may fall to 25700/25450-25250/25100-24900/24650-24450/24250 in the near term (under bear case scenario).

Technically, USDINR-I has to sustain over 72.55-73.00 for a further rally to 73.50/73.75-74.05/74.35-74.75/75.00-75.65/76.00 in the near term (under bullish case scenario).

On the flip side, sustaining below 72.15, USDINR-I may fall to 71.55/70.90-70.45/70.00-69.70/69.00 in the near term (under bear case scenario).

Technically, SPX-500 has to sustain over 2755 for a further rally to 2780/2810-2825/2855-2880/2905-2925/2945 in the near term (under bullish case scenario).

On the flip side, sustaining below 2745-2735 SPX-500 may fall to 2715/2700-2680/2650-2620/2590-2570/2535 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10500; Q4FY18 EPS: 402; Q4FY18 PE: 26.12; Avg FWD PE: 20; Proj FY-19 EPS: 425-450; Proj Fair Value: 8500-9000

Bank Nifty: 25700; Q4FY18 EPS: 519; Q4FY18 PE: 49.52; Avg FWD PE: 20; Proj FY-19 EPS: 961-1000; Proj Fair Value: 19220-20000 (assuming NPA recovery).

SPX-500: 2700; TTM Q2-2018 EPS: 123; TTM PE: 21.95; Proj 2019 EPS: 150-160; Avg FWD PE: 18; Proj 2019 EPS: 150-165; Proj Fair Value: 2700-2970


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