Market Wrap: 09/10/2017 (17:00)

NSE-NF (Oct):10020 (+17; +0.17%)

(TTM PE: 25.95; Abv 2-SD of 25; TTM Q1FY18 EPS: 385; NS: 9989; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24160 (+48; +0.20%)

(TTM PE: 27.62; Abv 2-SD of 25; TTM Q1FY18 EPS: 878; BNS: 24252; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 10/10/2017:

Key support for NF: 9980-9935

Key resistance for NF: 10065-10125

Key support for BNF: 24050-23750

Key resistance for BNF: 24400-24650

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10065 area for further rally towards 10125-10165 & 10205-10250 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10045 area, NF may fall towards 9980-9935 & 9880-9810 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24400 area for further rally towards 24550-24650 & 24750- 24850 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24350 area, BNF may fall towards 24150-24050 & 23750-23650 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10020, up marginally by 17 points (+0.17%) after making a day high of 10033 and opening minutes low of 9984 tracking muted global cues (renewed NK tensions & muted China service PMI) and favourable GST rates & compliance revisions on certain sectors (FMCG, SMES & exporters). Basically, market today consolidated within a narrow range ahead of Q2FY18 earnings season from tomorrow, kick starting with Dena Bank, followed by TCS, Indusind Bank, RIL, South Indian Bank later in the week.

Also, Sep CPI & Aug IIP may be keenly watched for the Indian market to gauze the strength/recovery of the economy after muted Q1 GDP amid GST & DeMo disruptions. Again, market may be apprehending lingering effect of Post-GST implementations disruptions on frequent changes in tax rates, which may compel traders to keep minimal stocking. Also, overall auto sales figure (SIAM) for Sep may not be so much encouraging as it clocked only 10% growth (YOY) across various categories on an average.

Today Nifty was supported by ITC, HDFC, Yes Bank, Bajaj Fin, Kotak Bank, HUL, Adani Ports, Eicher Motors, Indusind Bank & Infy cumulatively by around 32 points, while it was dragged by RIL, VEDL, ONGC, Auro Pharma, HDFC Bank, Power Grid, HPCL, BPCL, IOC, Gail by around 28 points altogether.

Coal India gained around 1.68%, the biggest in the Nifty pack today on better production figure and reported coal shortages across various thermal power stations. The coal sector is also gearing up for more liberalized commercial coal mining regime.

Overall market was supported by FMCG, consumer durables/pumps (favourable GST rates), Gems & Jewelers (higher gold rate & PMLA relaxation), Banks & Financials, and property developers/reality, automobiles (festival & wedding season demand optimism), while it was dragged by energies, OMC (lower oil & margin squeeze and PSU consolidations).

Morning recap:

Indian market (Nifty/India-50) today opened almost flat on subdued global cues and GST optimism ahead of Q2FY18 earnings. As expected, on Friday weekend, Govt has reduced GST rates on a number of sectors facing severe headwinds for higher rates. Govt also streamlined GST for exporters and certain SMES. All these have positive impact on the market coupled with renewed optimism about metals (global reflation) on weekend Friday. Tata Steel was very upbeat on higher domestic productions and overall optimism.

Revised GST on manmade yarns, water pumps, hotels & tourism and PMLA benefit to the gems & jewelries were specifically positive for those sectors. On 5^th Oct, India’s service PMI for Sep also flashed at 50.7, marginally up from the boom/bust line of 50 (prior: 47.5); this was also good for the overall market sentiment after GST shock.

But, still there are various ambiguities & over regulation in GST and lack of common rules & regulations at PAN India level, which is making overall collection & compliance process harder for the stakeholders, especially the SMES. Around two lakh truckers are on a two day strike for harassment & corruption issues at various state border RTOS.

Market is hopeful that in H2, Indian economy may come back as DeMo & GST disruptions effect will fizzle out after Govt’s “pro-active” corrective actions (reform) for various GST ambiguities. But market may not be so much confident about earnings recovery in Q2 and thus all focus now may be on H2FY18.

Although, some market participants are now projecting an average Nifty EPS of around 486 in FY-18, present trend may be indicating it as around 418; actually, 400 Nifty EPS is being proved as a big hurdle for the Indian market for quite a few years now despite all the so called “green shoots” in the economy. Actual Q1FY18 TTM EPS is now around 384, almost 2.5% down from FY-17 (Q4FY17) EPS of around 393. Earnings need to catch up with the rising PE & the market, irrespective of any narratives.

Also, resolution of NPA may be a bigger headwind for India’s legacy issues of twin balance sheets; present NCLT rules may have several deficiencies for a quick & meaningful resolution of the problem and kick starting the private investments thereof. Today, Indian PM is slated to meet global oil giants including RIL-BP to explore higher investments in oil infra and lower reliance on imported crude oils. A higher WTI above $55-60 level may not be good for the Indian economy.

Globally, most of the major Asia-Pacific markets edged up today in a holiday thinned market amid subdued global cues on lower USD after renewed NK sabre-rattling on the weekend despite “upbeat” US economic data; China spot market catches up with the global/future market, while Japan, Canada & also US market are closed fully/partially. A muted China service PMI this morning may have also affecting the overall “risk on” trade mood.

Although, US NFP for Sep flashed as terrible at -33k vs estimate of 90k; prior: 169k-R, average hourly earnings grew by 0.5% against estimate of 0.3%; prior: 0.2%-R (MOM); unemployment rate was 4.2% vs estimate/prior of 4.4%. In brief, higher revisions of Aug NFP coupled with surge in wage growth at +2.9% annualized rate made the USD buzzing, but it soon reversed the gain on realization that all the NFP figures including the blockbuster wage growth are distorted due to the impact of dual hurricanes and thus may be revised further.

USD got some further jolts on reports that NK is planning to test another ICBM around 8^th Oct-18^th Oct, (NK Party Anniversary-China Party Congress) capable to hit the US west coast. Thus, USDJPY which rallied to 113.44 soon after the NFP, again fall to 112.60 at the day end (Friday). Market may be also concerned that the sudden rise in US hourly wage growth may be skewed for hurricane related temporary relief work and thus market will now keenly watch Nov & Dec’17 NFP data for an overall trajectory of US job market strength.

In any way, FFR is now showing above 80% of a Dec’17 rate hike probability, considering ongoing Fed talks and recent spate of US economic data, which may be termed as mixed overall. But USD is now basically a victim politics rather than economics. On the weekend, Trump’s tweeter handle was again abuzz with NK rhetorics in a series of anti-NK tweets. Also, overall Fed speeches may be indicating that Dec’17 rate hike by Fed may be one & off (dovish hike), considering soft US inflation & change in Fed leadership.

On geo-political front, Trump basically tweeted that his three predecessors has been talking with NK for over 25 years without any meaningful result despite paying the hermit state a huge amount of “ransom money” ; in such scenario “only one thing will work”. This may be indicating that Trump is settling for a “war” against NK & Kim and thus USDJPY is under pressure and is now trading around 112.60, almost unchanged.

It’s now seemed that despite scope of “dialogues” with NK, Trump is showing no urgency to talk, because a NK “war” hysteria may be a perfect instrument in the hand of Trump to make USD lower despite a hawkish Fed going for a dual QT coupled with some visibility of US tax reform and mixed US economic data; a lower USD is good for US economy, imported inflation and US corporate earnings/exports. Ongoing domestic US political drama may be also helping to keep USD down.

Overnight on Friday weekend, US market closed almost flat on dilemma between economics & politics and concern of stretched valuation ahead of Q3 earnings. DJ-30 lost 2 points to close almost unchanged at 22774, while S&P-500 fell 0.1% to finish at 2549 and NQ-100 edged up by 0.1%; barring IT, almost all the sectors were in red on Friday. Energies (lower oil) & Pharma (Amazon disruption fear) and some retailers (poor guidance) were under pressure.

US stock future (SPX-500) is now also trading almost unchanged at 2547 and looking ahead 2555-2565 zone may be a big hurdle for SPX-500 and immediate support is now at 2530-2510 area.

Also, EUR may get some strength as Catalonian separation movement may be backtracked and there was also some news that Merkel may forge a working coalition Govt in Germany soon. A higher EUR may not be good for EU & global market sentiment. Anti separation movement may be gaining traction in Catalonia as Brexit like economic uncertainty looms in and several big corporates & banks are considering a relocation of their HQ from the Catalonian region; ultimately no one wants such economic uncertainty affecting their own standard of living.

Elsewhere, Australian market (ASX-200) closed around 5739, up by almost 0.50% on lower AUDUSD, good for AU export heavy market. AU market today was also helped by upbeat banks & financials and hotels (M&A buzz) and gold miners (higher gold today). But later it was dragged by metals/miners (muted China service PMI) and energies (lower oil).

AUDUSD is now trading around 0.7760, down by almost 0.22% on muted China Service PMI and regional (NZ) political uncertainty; NZDUSD is also trading almost flat at 0.7069 (-0.02%).

Although, Japan is closed today, Nikkei-Fut is trading slightly higher at 20690 vs previous close of 20630 (+0.30%) despite marginally higher Yen today. As par some reports, Abe may face tough competition in the snap election this month and may not win the absolute majority. This may be good for Yen as Abenomics & BOJ QQE debate heats up, which may force Kuroda to go for some back door QQE tapering earlier than expected. But for the short term, BOJ is expected to continue its ultra dovish stance because of JP political risks (Yen negative).

China (SSE) is now trading around 3374, up by almost 0.76% after a week long holiday, catching up the global index/future level on upbeat China Mfg PMI & selective RRR cuts by PBOC just before start of the golden week holiday.

Actually, China-A-50 FUT is down today by almost 1.60% and now trading around 12190 vs close of 12385 on terrible Service PMI for Sep, which was flashed as 50.6 vs estimate of 53.1; prior: 52.7; composite PMI came as 51.4 vs prior 52.4.

Overall, muted China composite PMI (private data-Caixin/Markit) may be indicating that a slower Q4 GDP despite higher PPI and upbeat official (Govt) Mfg PMI few days ago. There are wide divergences between official/Govt & Private PMI data for Sep, just ahead of the China party congress.

As par some official China report (CASS), Q4 GDP may come around 6.7%, while full CY-17 GDP may be around 6.8%; Q4 CPI may be reported as 1.7%. As par Fitch, China is gradually making progresses towards steady reduction in shadow banking, which is helping in containing widespread financial risks. Any potential shock of liquidity crisis in the system is also being addressed by the PBOC in recent cut of targeted RRR (priority sectors/MSMES).

Today, PBOC fixed the mid-point of USDCNY at 6.6493 a little higher than on 29^th Sep without any OMO to flush the liquidity of 180 bln Yuan from the China money market. Today China spot market was helped by automakers, banks & financials, property developers and retailers on upbeat holiday sales.

Hong-Kong (HKG-33) stock future is now trading around 28330, down by almost 0.50% affecting the overall regional sentiment. HK market was today dragged by casino players/gaming stocks such as Macau on muted China travelers’ spending during golden holidays.

Today, HK was also dragged by Chinese property stocks on muted sales for Sep in some second & three tier cities and energies, while it was helped by banks & financials (recent China RRR cut).Overall, HK market is waiting for maiden policy address this week by the City’s CEO (Hong-Kong policies).

Meanwhile, Crude Oil (WTI) is now trading around 49.35, up by 0.14% as there were no damages out of latest US storm (Nate) for the US oil refineries; it was down to 49.02 on 6^th Oct (weekend) amid concern of Nate storm coupled with a Saudi-Russia comments that production extension cut is not on the table right now, although it may be discussed later to stabilize the oil market. US oil rigs count (Baker Hughes data) also edged down from 750 to 748 (neutral effect).

Looking Ahead, WTI need to sustain above 49.35-49.00 zone; otherwise we may see more OPEC-NOPEC jawboning to keep the price higher.

Gold is now trading around 1283, up by almost 0.51% on weak USD amid fresh NK tensions despite a SK report that “all are quiet apparently & no signs of any ICBM yet” coupled with growing US political/WH debate of an “adult day care center” and “nuclear war”.

EU Market Edged Up Supported By Anti Catalonian Separation Movement & Flat EUR Despite An Upbeat German IIP Data

EU market is trading marginally higher at Stoxx-600 around 0.20% higher, while DAX-30 is up by almost 0.12%, CAC-40 is unchanged, FTSE-100 is down by 0.26% and IBEX-35 is rallied by almost 0.65%. Overall sentiment of the EU market is today being supported by Catalonian anti-separation movement coupled with an upbeat German IIP data and hopes for an imminent coalition Govt led by Merkel in Germany

Although, Catalonian separation & bloody referendum movements is still simmering, considering hard stance by the Spanish Govt and a large anti-separation demonstrations on Sunday in favour of Spanish unity, a senior member of the Catalonian Govt/administration signalled for a dialogue with the Spanish Govt and thus Spain shares are rallying and helping the overall EU market sentiment.

But all eyes may be also on tomorrow’s legislative action by the Catalonian leader, if he declared the “independence”, although probability is very low as Spanish Govt is pressurizing the pro-separation Catalonian administration through economic blockade and simple relocation of business headquarters out of the region and also through threat of security forces.

Such financial pressure could make the life of Catalonians miserable, if it goes for ultimate separation and thus overall political uncertainty may be also a near term headwind for the market.

Overall, EU market is today being supported by utilities, techs while dragged by industrials, energies, banks & financials and some rebound in EUR earlier tracking an upbeat German IIP data for Aug, although the data may be encouraging for German economy itself despite recent strength in EUR. German bank DB was dragging the market a reported rift with its largest shareholder, a China conglomerate (HNA Gr).

FTSE-100 is under pressure on strong GBP as ONS may revise upwards the UK inflation and wage growth for a statistical error; GBP sentiment was also boosted by Theresa’s bid to regain control over the conservative party by sidelining Brexit minister Johnson, who may be also a potential candidate for UK PM in the event of Theresa’s sudden resignation.

UK market today is also being dragged by miners, energies, exporters (higher GBP), and retailers while it was helped by gold miners, defensive sectors, some utilities and consumer staples.