Market Wrap: 11/10/2017 (17:00)

NSE-NF (Oct):9981 (-54; -0.54%)

(TTM PE: 25.94; Abv 2-SD of 25; TTM Q1FY18 EPS: 385; NS: 9985; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24085 (-289; -1.19%)

(TTM PE: 27.46; Abv 2-SD of 25; TTM Q1FY18 EPS: 878; BNS: 24107; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 12/10/2017:

Key support for NF: 9950-9900

Key resistance for NF: 10040-10085

Key support for BNF: 24000-23750

Key resistance for BNF: 24250-24550

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10040 area for further rally towards 10085-10125 & 10165-10205 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10020 area, NF may fall towards 9990 -9950 & 9900-9840 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24250 area for further rally towards 24400-24550 & 24650- 24800 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24200 area, BNF may fall towards 24000-23750 & 23600-23400 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 9982, plunged by almost 54 points (-0.54%) and well off the day high of 10084 in a last hour of sudden panic selling, which made it to the day low of 9969. Indian market today opened around 10052, up by almost 0.16% and most of the days was consolidating around 10070 tracking mixed global cues after “delayed Catalan independence” issues and better than expected IMF projection for CY:17-18 GDP growth coupled with earnings optimism for Q2FY18.

But sudden selling in HK market as a result of lack of clarity of land policy in HK CEO’s maiden speech today made the property/home builders stocks plunging there in a volatile trade. As a result, Indian market also came in sudden selling spree. Almost at the same time, there was some news that an US navy/war ship has entered into the South China Sea, for which China has lodged a strong protest against US!!

Also, there was another news that BJP’s Subramanian Swamy has written a harsh letter to SEBI Chairman alleging various corporate mis-governance issues against three Tata Cos (TATA STEEL/MOTORS/CHEMICALS) and SEBI’s inaction against those cos; Sway also threatened to move court, if SEBI fails to take any action. Swami is an influential ruling party activist, famous for various legendary cases against any wrong doing!!

Also, CPI for Sep is slated to come as 3.60% vs prior 3.36%, which is at the upper band of RBI projection of 4% and combined with that higher crude prices, strong USD, uneven monsoon this year (less than normal), GST disruptions may be some of the reasons for higher trajectory of inflation in the coming days, which will compel RBI to stay neutral for the rest of 2017 or even FY-18.

Sharp cut in GDP projection for 2017 by IMF on DeMo & GST ground may have also affected the overall market sentiment today, although projection of the IMF may be better than the market expectations & RBI forecast after terrible Q1FY18 GDP at 5.7%, the lowest since 2014.

But, whatever may be the narratives behind sudden selling spree today, market participants may be concerned about Q2FY18 earning trajectory after terrible report card from South Indian Bank yesterday & Lakshibilash Bank today.

As valuation is already stretched after subdued Q1FY18 earnings, market may not want to take further risks and thus may focus on deluge of earnings and CPI data this week, before any fresh investments. Thus, the above reasons may have just acted as a trigger/excuse for selling.

Market today tried to recover in the last minutes after PM-EAC presser; but there was also no such immediate stimulus/plan for the economy to dig it out of the slowdown, NPA headwinds and massive un / under employment problem.

Basically, PM-EAC today officially acknowledged the slowdown in the economy for various reasons and identified 10 broad issues to deal with the problem structurally; it will focus on economic growth, employment, integration of informal sector of the economy with the formal stream, fiscal framework, monetary policy, public expenditure efficiency, institutions of the economic governance, agriculture & animal husbandry, patterns of consumption & production and social sectors.

PM-EAC will also “compliment” its view on the monetary policy and share it with RBI time to time and it will also work on the overall shape of the next general budget and suggest any new ideas to the PM for implementation. No doubt the list is long and considering the nature, shape & size of the PM-EAC, it may be tough to imagine some quick stimulus/fix for the economy & the market.

Overall, it seems that by forming again the EAC, PMO/NAMO may be trying to run a parallel FMO as he is losing confidence on the present FMO, considering the poor economic performance and falling GDP in every quarter since BJP came to power in 2014. Thus it may not be a surprise, if the present FM is “unavailable” for his next term on “health grounds” or even resigned/demoted suddenly in 2018 ahead of general election.

Indian GDP is falling in every quarters prior to the DeMo & GST and the reasons may be structural (gradual conversion of black money oriented economy to white money, tepid private investments, India’s legacy issues of high cost economy, huge stressed assets, muted private/consumer consumption etc).

Also, going by PM-EAC’s “complimentary idea” sharing (interference) with RBI for the monetary policies may also undermine the independence of this institution and FPIS may also lose confidence on the RBI and a strong INR/hawkish policy.

Today Nifty was supported by IOC, HPCL (OMC/Energy sector optimism), TCS (ahead of earnings tomorrow), Bharti Airtel & Infratel (tower deal buzz), HDFC, HUL, M&M, BPCL & Wipro by around 42 points altogether.

Nifty was dragged by HDFC Bank, VEDL, Tata Motors, Yes Bank, SBI, Bajaj Fin, ICICI Bank, Kotak Bank, L&T & RIL by around 50 points cumulatively.

Overall, today Indian market was dragged by metals, reality/property developers, banks & financials (lower GSEC bond yields, negative for their business models) and health care/pharma stocks, while it was helped by selective IT/techs & energies (Oil & GAS/OMC).

Morning Recaps:

Although, IMF has sharply downgraded Indian GDP for CY:17 to 6.7% from earlier projection of 7.2% on account of lingering effect of DeMo & GST disruptions, it may be still above official RBI projection or general market consensus after terrible Q1 GDP at 5.7%; RBI has projected real GVA at 6.75% for FY:18.

For CY: 2017-2018, IMF has projected China’s GDP as 6.8% vs 6.7% (prior) and 6.5% vs 6.4% (prior); in that scenario, Indian GDP may not be far behind China, if IMF projection come true; in fact for CY-18, IMF has projected Indian GDP at 7.4%, which if come true, then India can outstrip China GDP growth rate by 2018.

Although, such IMF projection has no real effect on the overall global market, considering its poor forecast history, for records: IMF GDP projection

· Global GDP 3.6% vs 3.5% (2017)

· Global GDP 3.7% vs 3.6% (2018)

· US GDP 2.2% vs 2.1% (2017)

· US GDP at 2.3% vs 2.1% (2018)

· China GDP 6.8% vs 6.7% prior (2017)

· China GDP at 6.5% vs 6.4% prior (2018)

· EZ GDP 2.1% from 1.9% prior (2017)

· EZ GDP 1.9% vs 1.7% prior (2018)

· Japan GDP 1.5% vs 1.3% prior (2017)

· Japan GDP 0.7% vs 0.6% (2018)

· India GDP 6.7% vs 7.2% (2017)

· India GDP 7.4% vs 7.3% (2018)

· UK GDP 1.7% vs 1.9% (2017)

· UK GDP 1.5% vs 1.8% (2018)

Basically, apart from US, India & UK, IMF has upgraded GDP growth for all the other major economies. IMF has downgraded US for political risk & poor visibility of Trumponomics (tax reform & fiscal/infra stimulus); UK for Brexit & political uncertainty (tepid private capex & lower GBP); India for DeMo & GST disruptions. But IMF has also kept long term hopes on India’s ongoing structural reform and has called for necessary reform in land acquisition, labour laws etc, which may push the economy for better growth in 2018-19.

Apart from growth slowdown, NPA is another major problem for the Indian economy. As par latest RBI report, almost $146 bln or around 13% of total bank loans were stressed as on June’17. The figure may be well above 15% by now and as par some earlier reports, almost 25% of India’s bank loans might be soured. This may be an indication that although the reorganization process is fairly good, the resolution process may be quite slow and in some cases unviable too!!

All eyes now will be on Q2FY18 earnings trajectory along with the maiden meeting of PM’s economic advisory panel (PM-EAC) for any viable plan or fiscal stimulus suggestion to the PM to dig out the Indian economy out of its deepest slump since 2014.

Globally, most of the major Asia-Pacific markets are now trading in green around their respective milestone highs tracking mixed global cues and IMF’s better than expected projection of global GDP.

Basically, Asia-Pacific market has got some boost as USDJPY recovered from yesterday’s low of 112 to almost 112.45 now, on a Global Times (China) report that NK may give up its Nuke ambition in lieu of guarantee for “security”; i.e. if NK got some guarantee about no US attack, it can give up its Nuke weapons. A higher USD is generally good for the export heavy Asian market.

Earlier, USD dropped due to a report that NK has an ICBM of 3000 km, which is capable of hitting US territory after some “modifications”.

USD was also under some pressure yesterday on dwindling prospect of passage of the US tax reform bill this year on increasing feud between Trump & some of his own RNC senators. Trump will now modify some of his tax cut plans to reintroduce it; most probably it may be some adjustments in low/middle income group tax cut plans and thus prospect of the committed 2017 legislative passage & implementation may now looks remote.

USD & also EUR got further boost yesterday from Catalan Prez’s confused speeches about “delayed declaration of independence” from Spain and an indirect offer for negotiations with both Spanish & EU authorities (bargain hunting). But, Spanish authorities quickly rejected the speech of Catalan Prez, terming it as an indirect declaration of independence & a “trick”, which is not acceptable.

Catalan episode turned into further political uncertainty after Catalan Prez signed an independence declaration document just one hour after his “historic” speech; as par latest report, Spain has convened an emergency cabinet/parliament all party meeting to deal with the Catalan crisis.

Thus, the Catalan epic drama may continue for political compulsion of both sides and it may be also a major hangover not only for Spain, but also for the overall EU market & EUR at least for the medium term and that may also help Draghi to normalize the ECB monetary policy & go for QE tapering without worrying too much for the EUR strength.

USDJPY got some risk-off mode early in the Asian session today after news that US has flied 2 bomber planes along with 4 other SK & JP Jets in a show of strength over the Korean peninsula coupled with some dovish jawboning by Fed’s Kaplan, looking for evidence of progress on inflation for further hikes.

Kaplan is also worried about sluggish US growth and concerned about fall in 10YUSTSY yields despite past Fed hikes (symptoms of an inverted yield curve or recession!!).

But, USDJPY recovered slightly on hopes of a hawkish FOMC minutes later today coupled with favorable yield differential. As of now, USD may be already discounted to a great extent for Dec’17 rate hike, but Fed dot-plots for 2018 may looks uncertain on subdued US inflation & mixed economic data coupled with uncertainty of Fed leadership & US politics and fiscal stimulus.

Overnight, US stock market closed in positive in another milestone over Q3 earnings optimism despite faded hopes of tax cut in 2017 and ongoing saber-rattling between NK & US; DJ-30 edged up by almost 0.31%, S&P-500 closed 0.23% higher around 2551, while NQ-100 lost 0.01% (almost unchanged). Yesterday, US market was helped by Wall-Mart on upbeat guidance along with consumer staples, energies (higher oil), airlines and healthcare, while dragged by mixed techs.

US stock future (SPX-500) is now trading around 2550, almost unchanged before EU market opening; apart from earnings, NK & Catalan issues, FOMC minutes, Fed’s thinking for Dec’17 rate hikes, market may also focus on deluge of Fed talks and any reference to the BS tapering issue, which was scheduled to start from 1^st Oct; if there is no adverse effect, then a Dec’17 rate hike is almost certain.

Elsewhere, Australian market (ASX-200) closed around 5772, up by almost 0.60% & at multiyear high, helped by banks & financials, techs/IT, consumer discretionary, industrials and energies, while dragged by metals, basic resource materials, miners (weaker iron ore).

AUDUSD is almost unchanged today at around 0.7785 on improved Westpac Consumer sentiment data & upbeat GDP forecast for China by IMF; but yield differential and market’s appetite for USD ahead of FOMC minutes may be also affecting AUDUSD to some extent today.

Japan (Nikkei-225) closed around 20881, up by almost 0.28%, also at 21 yrs milestone highs on weaker Yen, beneficial for the export heavy JP market. Today JP market was helped by techs and energies, while dragged by steel & auto makers amid growing scandal about Kobe auto steels quality data falsifying, which may be also affecting the overall JP corporate governance and quality of JP products. But hopes for a clean Abe win in the forthcoming snap election may be also helping the market.

Today JP core machinery orders data for Aug also came as upbeat and coupled with that overall encouraging JP economic data and consumer spending has helped the market immensely.

China (SSE) closed around 3388, up by almost 0.16% on upbeat GDP forecast by IMF; today China market was helped by banks & financials, energies, techs, but later came into some pressure after HK CEO’s policy speech, negative for the home builders/property developers. Also, there were some reports that Chinese insurers are buying Chinese Bank-H shares ahead of the party congress to support the market.

Today PBOC fixed the mid-point of USDCNY at 6.5841 vs 6.6273, significantly lower on daily basis with neutral OMO; a strong Yuan policy may be good for the financial market on greater FPIS, but it may not be so good for the Chinese exports to US.

Hong-Kong (HKG-33) stock future is now trading around 28325, down by 0.50% from earlier positive on lack of clarity of land policy in HK CEO’s maiden speech today; property/home builders stocks were plunged in a volatile trade.

HK CEO (Lam) did not specify today about new land supply measures or arrangements regarding farmland conversion as highly expected; HK may be now in a housing bubble, considering the skyrocketing price, less supply and high demands. But China based banks & financials and construction lenders have helped the market to some extent along with techs & energies.

Meanwhile, Crude Oil (WTI) is now trading around 51.05, up by almost 0.25% on OPEC jawboning about quicker rebalancing, production cut extension with deeper cut (with more producers) and some fall in Saudi export last month.

EU Stocks Almost Flat/Mixed Except Spain On Higher EUR Despite “Temporary” Catalan Relief

EU market today slips marginally lower in Stoxx-600, almost down by 0.06% on higher EUR after Catalan pro-separation Prez delayed his direct independence announcement yesterday in lieu for meaningful dialogues with Spanish & EU authorities. DAX-30 is up by marginally almost 0.10%, CAC-40 edged down by around 0.16%, while FTSE-100 is almost unchanged (-0.01%); but IBEX-35 surged by almost 1.28% on “temporary” Catalan relief.

EUR got further boost today from Catalan Prez’s confused speeches about “delayed declaration of independence” from Spain and an indirect offer for negotiations with both Spanish & EU authorities (bargain hunting). But, Spanish authorities quickly rejected the speech of Catalan Prez, terming it as an indirect declaration of independence & a “trick”, which is not acceptable.

Catalan episode now fast turning into further political uncertainty after Catalan Prez signed an independence declaration document just one hour after his “historic” speech; as par latest report, Spanish Govt has convened an emergency cabinet/parliament all party meeting today to deal with the Catalan crisis and may have started the process of Catalan autonomy with a sow cause types of letter to the Catalan Prez.

Thus, the Catalan epic drama may continue for political compulsion of both sides and it may be also a major hangover not only for Spain, but also for the overall EU market as Catalonia is an important part of Spanish economy.

Today IBEX-35 is being helped by Catalonia based banks & financials after recent plunge on fear of an immediate secession; but overall market is relieved to some extent as Catalan Prez blinked yesterday and basically played a “game of chicken” considering the dilemma of political compulsion and reality of the situation on the ground for a Brexit like separation from Spain.

FTSE-100 is basically unchanged today on flat GBP amid hopes of an imminent rate hike in Nov and ongoing Brexit & UK politics squabbling.

Stock specifically, Mondi tumbled 8.6% after the packaging and paper group slashed guidance; Smith & Nephew jumped 4.1% after reports that hedge fund Elliott Management Corp. has built a stake in this British medical equipment company; Dunelm climbed 5.3% after the home ware retailer said Q1 revenue jumped 25%.

Overall EU market was today dragged by industrials, metals & miners, while helped by energies, banks & financials to some extent; market may be also cautious ahead of Q3 earnings.