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

NSE-NF (Oct):10256 (+0.05; +0.00%)

(TTM PE: 26.58; Abv 2-SD of 25; TTM Q1FY18 EPS: 385; NS: 10234; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24667 (+25; +0.10%)

(TTM PE: 28.09; Abv 2-SD of 25; TTM Q1FY18 EPS: 878; BNS: 24703; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 18/10/2017:

Key support for NF: 10190-10150

Key resistance for NF: 10275-10325

Key support for BNF: 24500-24300

Key resistance for BNF: 24875-24950/25050

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10325 area for further rally towards 10380 -10455 & 10495-10585 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10305-10275 area, NF may fall towards 10190-10150 & 10060 -10015 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25050 area for further rally towards 25250-25585 & 25795-25975 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25000-24950 area, BNF may fall towards 24875-24500 & 24300-24000 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10256, almost unchanged (+0.05%) after consolidating in a narrow range of 10271-10228 following a lackluster day of trading in absence of any major cues ahead of earnings deluge.

Indian market today also opened almost flat tracking mixed global cues on renewed NK rhetoric & Fed chair uncertainty and earnings optimism, which is so far stable / mixed. Asian market was also mixed amid higher USD and upbeat commodities (China optimism) coupled with some cautious stance ahead of China Party Congress.

Indian market today saw mild profit booking (long unwinding/fresh selling) as Nifty made a fresh life time high ahead of long weekend ‘Diwali” holiday from day after tomorrow and valuations are also extremely stretched; so far Q2 earnings were mixed/stable, but not exceptional to justify above 26 TTM PE of Nifty.

After initial selling, market tried to regain some ground on some upbeat comments from a member of PM-ECA (Adviser) that Govt is likely to stick to the fiscal deficit target of 3.2% of GDP for FY-18 and GDP growth for the period may come around 6.5%, although significantly lower than the earlier Govt estimate of 7.3%.

As par PM-ECA, India needs around Rs.1 tln for PSBS recap and such fund could come from selling stakes in PSU; RBI need to cut by 0.75-1.00% more to bring repo rate around 5.25-5% assuming the average CPI around 4% (this will bring the RRI around 1-1.25%).

But market was unfazed except some movements in PSBS because of recap talks. Overall, it now seems that Govt is still not decided about fiscal stimulus for around Rs.0.5 tln as it may adversely affect the fiscal deficit target by around 0.3% on falling/lower GDP earlier estimated in the budget.

So far, Govt capex & private consumption may be the main two drivers of Indian GDP story; but after DeMo (war against black money), private consumption looks muted and thus now Govt capex (fiscal stimulus) is the main driver of Indian economy in absence of adequate private capex.

But, combined fiscal deficits (Central +State) is already high in India, now over 6% and may accelerate more on widespread farm loan waivers across various states coupled with power subsidies and various other political populism measures along & some disruptions in revenue after GST.

Thus, both state & central Govt may not be in a position right now for incremental capex to support the Indian growth story and thus resolution of NPA is urgently required to kick start bank lending & private investments.

Again, banks are increasingly finding it difficult for eligible quality borrowers after DeMo & NPA fiasco and support the “shining India” story. Today’s result of Axis Bank may be also indicating that NPA fiasco is far from over and it’s a structural problem for India.

Today Nifty was supported by HPCL, Bharti Airtel, Bharti Infratel, Yes Bank, Cipla, IBULLS HSG, Asian Paints, BPCL, Ultratech Cement & Hindalco, while it was dragged by ZEEL, Infy, Tata Motors, HDFC Bank, Axis Bank, Bajaj Fin, RIL, HDFC, Indusind Bank & Kotak Bank.

Overall, telecom stocks were upbeat on sectoral consolidation and rationalization hopes for the international connectivity/roaming charges. Apart from telecoms, Indian market was helped by reality/property developers, energies, capital goods, PSU cos, healthcare, metals & power, while it was dragged by IT, banks & consumer durables.

Elsewhere, Australian market (ASX-200) closed around 5890, up by almost 0.70% on another milestone high on China optimism and was helped by basic materials/metals, miners (upbeat China PPI data yesterday), banks & financials (higher US bond yields), energies (higher oil), while dragged by health care. Rebound in iron ore prices is also helping the AU market today.

AUDUSD is almost flat today now at 0.7844 (+0.01%) after a dovish RBA minutes as expected; RBA is in no hurry to raise rates in the foreseeable future as they are comfortable with the present exchange rate level, but it’s upbeat about overall AU economic & job market prospect with some concern on subdued inflation, slow wage growth & strength of AUD as usual. RBA is also seeing good traction out of increasing Govt capex/infra spending for the AU economy. Overall, today’s RBA minutes may be less dovish than expected.

Japan (Nikkei-225) closed around 21336, up by almost 0.38% on higher USD & Abe optimism, extending a ten day winning streak and a fresh 21 yrs high. JP market was today helped by exporters, automakers, while dragged by mixed techs, metals & energies. Kobe steel is today up by 5% despite a fresh report that it cocked data for decades, much longer than the co indicated earlier (10 yrs). But, JP market today pared some gain after some drops in USD in the early Asian session on fresh NK rhetoric and an upbeat Tankan survey.

China (SSE) closed around 3372, down by almost 0.19% ahead of the much awaited Party Congress & Q3 GDP. Overall, market sentiment was supported by PBOC injection of 130 bln Yuan today, apparently aimed at easing liquidity concern ahead of the Party Congress as 10YTSY yield climbed above 3.7% yesterday, the highest level in 2017.

Today China market was supported by SOE (PSU) on reform hopes, banks & financials, utilities, while dragged by basic resource materials on concern for capacity cuts (deleveraging) & production curbs on air pollution concern ahead of winter season.

GDP is expected to come around 6.8% in Q3 vs Q2 figure of 6.9%; but some surprise may also come during the Party Congress as PBOC chief recently signalled about 7% for Q3 GDP despite deleveraging, property curbs & PBOC tightening. US rating agency S&P today said that China is running unconventional monetary policy, while China state economist batted for tighter PBOC monetary policy today. PBOC today fixed mid-point of USDCNY at 6.5883 vs 6.5839 yesterday.

Hong-Kong stock future (HKG-33) now trading around 28685, edged down by almost 0.10% ahead of China Party Congress tomorrow. Today HK market was helped by banks & financials, insurers, retailers, energies while dragged by techs.

Meanwhile, Crude Oil (WTI) is now trading around 52.10, up by almost 0.45% on Iraq-Kurdish conflict and reports of supply disruption from the area coupled with concern for Iran nuke deal modifications by Trump. Technically, WTI now need to sustain over 52.75 area for 53.75-55.15 zone in the days ahead.

European Stocks Edged Up On Lower EUR & Rebound Of Spain On Prospect Of Catalonian Truce

EU market edged up today in Stoxx-600 (+0.05%) on lower EUR amid looming EZ political jitters and prospect of a dovish ECB QE tapering & muted German ZEW data; DAX-30 is up by almost 0.22%; CAC-40 gained by around 0.25%, FTSE-100 rise by almost 0.25% and IBEX-35 rebounds by almost 1% from earlier losses on hopes of a Catalan truce.

Catalonian crisis was intensified yesterday after Spain’s rejection of Catalan leader’s letter for dialogues without directly answering Spain’s pointer about independence bid; Spain has given Catalonia until Thursday to denounce clearly their secession referendum and remain with Spain without any independence drama.

Today Spain constitutional court also strikes down the Catalan referendum law effectively prohibited any separation probability. Earlier, Spain has cut its GDP forecast citing Catalonian geo-political uncertainty. Overall, it now seems that Catalonian pro-independence leader (Prez) may dial back their secession bid as Spanish Govt has taken a hard stance without any compromise on the Spanish unity. Also, Catalonian leaders may be now feeling the reality of a Brexit like separation and thus the overall situation may be under control of Spain.

Overall, EU market today is being supported by banks & financials (Credit Suisse demerger buzz), utilities, techs, airlines (M&A/JV buzz between Airbus & Bombardier) while dragged by automakers (subdued sales for Sep, down by 2%), healthcare & consumer services.

FTSE-100 gained by around 0.20% on lower GBPUSD after less hawkish BOE scripts and inline expectations of UK CPI at 3%; although a BOE hike in Nov is almost certain now despite Brexit uncertainty, it may be a dovish hike (one & off) and thus GBP is feeling some pressure. A weak GBP is good for export savvy UK market.

UK market today is also being supported by banks & financials on prospect of higher UK rates/bond yields, favourable for their business model. Apart from banks & exporters, FTSE-100 is also supported by utilities, while dragged by industrials.