Market Wrap: 18/08/2017 (17:00)
NSE-NF (Aug):9850 (-60; -0.60%) (TTM PE: 25.10; Nr. 2 SD of 25; Avg PE: 20; TTM EPS: 392; NS: 9837)
NSE-BNF (Aug):24094 (-168; -0.69%) (TTM PE: 30.28; Abv 3 SD of 30; Avg PE: 20 TTM EPS: 795; BNS: 24074)
Key support for NF: 9825/9770-9705
Key resistance for NF: 9885/9905-9950
Key support for BNF: 23925/23850-23750
Key resistance for BNF: 24275-24400
Hints for positional trading:
Time & Price action suggests that, NF has to sustain over 9905 area for further rally towards 9950/9980-10005/10035 & 10095-10115 area in the short term (under bullish case scenario).
On the flip side, sustaining below 9885 area, NF may fall towards 9825/9770-9705 & 9660-9595 area in the short term (under bear case scenario).
Similarly, BNF has to sustain over 24275 area for further rally towards 24400-24525 & 24675-24750 area in the near term (under bullish case scenario).
On the flip side, sustaining below 24225 area, BNF may fall towards 23925/23850-23750 & 23600-23500 area in the near term (under bear case scenario).
Nifty Fut (Aug)/India-50 today closed around 9850, slipped by almost 60 points (-0.60%) after making an opening minutes high of 9869 and mid-session low of 9794 amid panic selling in Infy as “war of words” between the board & its founder (NRN) got murkier following surprised (?) resignation of its CEO Sikka citing “recent drumbeats of distractions & sickening personal attacks & allegations” as primary reasons behind his sudden resignation.
As Infy concall reveals uglier side of the board room battle, the scrip further tumbled to around 14% coupled with another NRN letter bomb; thus dragging the index (Nifty) by around 65 points alone at one point of time as it’s an heavy weight scrip in the index. Sikka’s sudden resignation may have caused a symbolic loss of around Rs.25000 cr for Infy investors today.
But, towards the last hour of trading, Infy got some buying/short covering support on buzz that Nandan Nilekani, another insider trusted Infy man may be the next man in charge in place of Sikka and it closed around 10% lower; subsequently Nifty also recovered from day low amid intense short covering & some value buying. Also, assurance by Infy chairman that their buyback offer is still valid and co will be guided by Sikka in this interim period may have also calmed the nerves of the market today.
Incidentally, Infy scrip yesterday made a 52 weeks high of around 1029 on buyback news and today it made a 52 weeks low of 884 on Sikka’s resignation !! But, Sikka’s resignation may not be very surprising, if one follows various events & the co’s own declaration in its last financial report; the writing on the wall may be very clear; but such knee-jerk reaction may be also very normal in such scenario.
Sikka was under significant pressure from NRN & other promoter/founders related groups to declare a good buyback offer to return part of huge unutilized “cash & cash equivalents in hands” to the share holders as the co may be finding it tough to grow organically or inorganically, considering the changing landscape of the Indian IT outsourcing industry. Almost all the other major IT cos has declared such buyback offers in the recent past.
Indian market (Nifty Fut/India-50) today opened around 9870, almost 44 points down tracking subdued global cues tracking Barcelona terror & US political hangover. The market soon came into further stress following surprised resignation of Infy CEO Vishal Sikka amid an environment of trust deficit & repeated interference in the functioning of the Co by its founders.
On the other side of the Infy story, promoter/founders are accusing Sikka for huge travel expenses by private jets, irrational salary increase & severance payment to some former employees including Bansal and an unsatisfactory performance.
Sikka was instrumental in reviving the performance of Infy, since he took over in 2014 and market has a great trust in his ability; thus his sudden resignation amid corporate governance & share buyback issues may have left the investors in jittery and subsequently Infy is down today by almost 10%, dragging the Nifty index by over 55 points alone. His resignation may also trigger more attrition among other key Infy people.
After Tata Sons fiasco with Mistry, this Infy incident may also raise concerns among the investors for the overall corporate governance of Indian promoters or legacy founders and their relationship with the professional CEOS in their cos, who are supposed to work for the betterment of the co independently without much interference from the founders and is answerable only to the board; i.e. it may be a fight between promoters & professionals.
Thus, it may be best for the family oriented large Indian cos to appoint someone eligible within their family as CEO rather than taking service of an outsider, who may not be their “yes man” always; founders’ family have to come forward directly to manage their own co at driver’s seat, rather than trying to operate it through a remote control (puppet).
Traditionally, Indian IT outsourcing industry is a huge USD (FX) earner and also one of the backbones of the Indian economy. But now, with changing technical requirement coupled with anti-globalization narratives in US and also in certain other countries like UK, this may be a huge challenge for the Indian Govt as unemployment is rising rapidly, which may also turning into a major political issue in the forthcoming 2018-19 general election for NAMO.
A raising unemployment in the savvy IT sector may be also bad for the retail banking NPA, which is already on the upper trajectory apart from the huge corporate NPA.
Nifty was today dragged by Infy, HDFC, HDFC Bank, VEDL, Sun Pharma, ZEEL, Tata Motors, Axis Bank, SBI & Yes Bank. Infy alone dragged the Nifty by over 55 points today, while HDFC duo dragged it by around 19 points.
Nifty was supported today by Bharti Infratel, HUL, TCS, Eicher Motors, ITC, RIL and Bharti Airtel; telecoms were upbeat today as Govt may extend some sops to the ailing sector, which may be in line for next stressed sector for the banks after steel & power. ITC closed in positive today on buzz of increase in Cigarette prices despite Govt’s warning about illegal advertisements of Cigarettes, which may be legally not tenable.
Overall, Banks & Pharma scrips were in pressure today, but a last hour short covering rally made the Nifty to close 1% higher for the week against loss of 3.5% in the last week, marked by “Shell cos” fiasco. Apart from Sikka episode, muted Q1 earnings & NPA concern may have also dragged the Indian market today amid subdued global cues.
Globally, almost all the major Asian markets from Sydney to Tokyo are now trading in negative tracking subdued global cues & a weak USD after the tragic terrorist incident at a popular tourist place in Spain/Barcelona coupled with ongoing US political/policy paralysis and resignation squabbling (rumour) of Cohn, a key architect of Trump’s tax reform policy & his chief economic adviser and also the potential replacement of Yellen.
Although, Cohn has not resigned till now, he may be under immense pressure from intellect & corporate US to distance himself from Trump amid his controversial stance on the VA white nationalistic fiasco. Overall, US political & policy paralysis coupled with poor visibility of Trumponomics may be huge negative for the USD & risk assets including equity.
As corporate America is deserting Trump one by one, market may be unnerved as despite so much Trump tantrum, his corporate circle may be one of the elements of confidence booster among the investors, as they still believed Trump’s ability to deliver his Trumponomics narratives. But, now the whole rhetoric of Trumponomics may be in serious doubt not only for the ongoing daily US political entertainment, but may be also for limited fiscal maneuver room in the US budget itself.
Even, Trump’s own RNC GOP members now seems to be distancing themselves from his controversial hardcore nationalistic/racist image and all these may be also an indication that days of Trump as US Prez may be over; he may either resign or impeached shortly.
Although, yesterday’s overall US economic data may be mixed, the ongoing US political drama, WH hangover coupled with Cohn’s resignation buzz and above all, the tragic terror incident at Spain has made the USD & risk assets (US/global equity) lower. As a result, overnight US market (DJ-30/US-30) closed in deep red around 21751 (-1.24%) and SPX-500 (US-500) now also trading almost flat around 2430 (+0.14%) on geo-political risk aversion.
Looking ahead, SPX-500 now need to sustain over 2420-2415 zone; otherwise 2395-2370 zone may be clearly visible as market sentiment may be now clearly being driven by geo-politics, rather than economics. The repeated easy terrorist attacks by a moving vehicle in different parts of EU, targeting innocent man & women and also tourists may be a blow to EU’s huge tourism industry & employment.
Elsewhere, Australian market (ASX-200) also closed in deep red around 5747, down by almost 0.60% on a higher AUDUSD coupled with some negative report about AU bank’s credit rating by Fitch on account of CBA’s money laundering issues involving illegal cash deposits; banks & financials are dragging the AU market to some extent.
Japan (Nikkei-225) closed in red around 19470, down by almost 1.18% tracking a higher Yen (lower USDJPY) amid ongoing US political jitters and flight to safe heaven assets on Barcelona terror incident; JPY is also getting higher against EUR & GBP, putting more pressure on the export heavy JP index today. But upbeat JP corporate earnings may be also supporting the overall market sentiment there, but banks, financials & insurers are dragging the Nikkei today.
China (SSE) was almost flat around 3269 (+0.01%), being supported by upbeat metals & miners on global/EU growth optimism coupled with tighter supply; solid earnings from some of the leading tech cos. A mixed China housing price report may be also affecting the overall market sentiment, as cool down of housing boom may be an indication that China GDP growth is topping out.
Today PBOC fixed USDCNY a little higher at 6.6744 vs 6.6709 yesterday and injected net 20 bln Yuan in its daily OMO operations; for the week, it injected a net 110 bln Yuan against net drain of 30 bln Yuan last week. This may be also helping the overall stability of China market this week ahead of Party congress and ongoing PBOC effort of deleveraging & regulatory tightening.
Hong-Kong (HKG-33) was trading around 27060, down by almost 1% on higher USD & subdued global cues as Trump trade fades; it’s also being dragged by banks & financials today, but being supported by upbeat techs & metals.
Meanwhile, Crude Oil (WTI) is now trading around 47.25, up by almost 0.40% after overnight plunge from 47.17 to almost 46.45 tracking a mixed EIA report, which indicates a higher gasoline inventories & US shale supply despite a surprised Crude drawdown in line with API report; technically, 46.30 zone mat be an immediate support for the WTI now.
Gold is also hovering around 1295, up by almost 0.45% on geo-political risk aversion and a weak USD; sustaining above 1297-1310 area, it may further rally towards 1355-1375 zone in the days ahead.
Elsewhere, EU stocks are also in deep red tracking terror in Spain/Barcelona & intensified political hangover at WH and subsequent risk aversion flows into safe heaven assets; USD is getting weaker across the board and a strong EUR is negative for EU economy & stocks.
Overall, market sentiment may be now clearly being driven by geo-politics, rather than economics. The repeated easy terrorist attacks by a moving vehicle in different parts of EU, targeting innocent man & women and also tourists may be a blow to EU’s huge tourism industry, hotels, airlines & subsequently, EZ employment.
Also, market may be increasingly jittery about Trump’s political immaturity, which may be the prime reason behind today’s WH policy paralysis; yesterday Trump dissolved his infra council even before it began functioning, which may be an indication of gravity of the underlying situation.
The poor visibility of Trumponomics rhetoric may be a major headwind for the reflation or Trump trade coupled with distancing of the corporate America from Trump, who may be enjoying some kind of benefit of doubt by the market so far, being a non-political person having a great business sense & deal maker!!
The Euro Stoxx-50 is now 0.90% down and similarly FTSE-100, CAC-40, IBEX-35 (Spain) are all down by around 1% and DAX-30 is down by around 0.60%. Apart from Airline, hotels & other tourism related stocks, Banks are also in pressure for concern of lower Fed rate, which may be negative for their NIM, operating in US as they can’t increase their lending rate with a dovish Fed.