Market Wrap <https://www.iforex.in/news>: 02/02/2018 (17:00)
NSE-NF (Feb):10741 (-293; -2.17%)
(NS: 10761; Q2FY18 EPS: 391; Q2FY18 PE: 27.52; Abv 2-SD of 25; Avg FWD
PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)
NSE-BNF (Jan):26436 (-783; -2.88%)
(BNS: 26451; Q2FY18 EPS: 867; Q2FY18 PE: 30.51; Abv 3-SD of 30; Avg FWD
PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)
*For 05/02/2018: Feb-Fut (Key Technical Levels)*
Support for NF: 10615/10580-10530*/10475
Resistance for NF: 10660/10750-10795/10895*
Support for BNF: 26400*/26190-26000/25750
Resistance for BNF: 26650/26900*-27050/27200
*Trading Idea (Positional):*
Technically, Nifty Fut-Jan (NF) has to sustain over 10750 area for
further rally towards 10795-10895 & 10935-11050 zone in the short term
(under bullish case scenario).
On the flip side, sustaining below 10730 area, NF may fall towards
10660-10615/10580 & 10530/10475-10415/10375 zone in the short term
(under bear case scenario).
Technically, Bank Nifty-Fut (BNF) has to sustain over 26650 area for
further rally towards 26900-27050 & 27200-27475 zone in the near term
(under bullish case scenario).
On the flip side, sustaining below 26600 area, BNF may fall towards
26400-26190/26000 & 25750/25450-25350/25250 area in the near term (under
bear case scenario).
*Indian market* (Nifty Fut-Feb/India-50) today (2^nd Feb)closed around
10740, tumbled by almost 293 points (-2.17%),on worries about fiscal
discipline, higher inflation,higher oil
<https://www.iforex.in/news/oil-slips-higher-usd-after-upbeat-us-nfp-data-48695>,
a hawkish central bank (RBI), re-imposition of long term capital gain
tax (LTCGT) in the budget yesterday and overall concern of stretched
valuation andterrible global cues
<https://www.iforex.in/news/europe-may-be-red-higher-eu-bund-yields-48667>amid
surge in bond yields
<https://www.iforex.in/news/asia-tumbled-surging-bond-yields-japan-slid-earning-tech-woes-despite-higher-usd-48681>,
which is negative for equitieson higher borrowing costs
<https://www.iforex.in/news/china-recovered-suspected-state-intervention-after-reports-liquidity-crisis-banking-system-48689>.
Overall, it was a “Black Friday” and bloodbath on the Dalal Street as
market gives a thumbs down to the FY-19 budget, which is being seen as
politically populist, eyeing for the next series of elections and far
away from the fiscal consolidation path; today’s epic fall is the 2^nd
biggest post-budget day loss.
Moreover, reintroduction of LTCGT on over Rs.1 lakh @10% on LTCG without
benefit of the inflation indexation and along with that STT (securities
transaction tax) may have made the Indian market “mathematically
unattractive” despite grandfathering it up to 31^st Jan’18;
institutional funds may see some rotational shift towards the safety on
bonds.
There were wild rumours in the market today regarding LTCGT
applicability, especially with the FII (grandfathering clause). After
market hours, government has clarified that grandfathering clause & the
overall LTCGT rules are same for all types of market participants
including FII.
Government, on its part seems quite deterrent about LTCGT, as it will be
eventually applicable to the 5% large investors (institutions, HNI,
corporates, LLP), having LTCG of more than Rs.1 lakh in a year; most of
the small retail investors (95%) do not actually earn from the market
even on long term basis for their psychological mind set-up; on short
term basis, most of them (retail) also suffering huge losses from
trading & FNO activities, which is not suitable for small retail traders.
Market is apprehending that despite stable INR, FII may relook their
India investment strategy on account of fiscal worries & LTCGT rule as
overall capital market taxation burden is now huge. FII may also shift
their trading on the SGX more in the coming days as SGX may launch
derivative contracts of Nifty-50 scrips in the coming days.
*Indian bond yield surged:*
Indian 10YGSEC bond yield today also surged to 7.664% before closing
lower at 7.571% after rumour that RBI is in talks with the government
for open market operations (OMO), secondary market bond purchase (Indian
version of mini QE) to support bonds from further plunging and may also
raise FII limit in the bond (GSEC) market; but all these were
subsequently denied by the central bank later.
Market sentiment was further spooked by Fitch’s warning about Indian
rating on higher fiscal deficit (combined state & centre well above
6.5%) & high debt/GDP ratio (above 70%) and weak public finances.
Government projects fiscal deficit for FY-18 at 3.5% vs earlier est
3.5%; prior: 3.5%; for FY-19, projected fiscal deficit 3.3% vs earlier
Govt est 3%; market est: 3.2%.
Earlier, in 2014, government had promised to bring down the fiscal
deficit to 3% of GDP by FY-17, which was subsequently pushed back to
FY-18 & then FY-19 and now to FY-20. Thus, despite all the so called
“green shoots” in the economy, government is not being able to be
fiscally disciplined as the entire Indian growth story is dependent on
Govt capex for the last few years amid muted private capex & subdued
private consumption.
As par Fitch, the government’s commitment to embrace the recommendation
of the FRBM committee to adopt a ceiling of 40 % of GDP for central
government debt is positive, even though the temporary delay in
consolidation makes it unlikely that this debt level will be reached by
2022-23, as recommended by the committee last year.
Any government, on its part can spend unlimited capex to stimulate the
economy, but it has also certain costs and thus Indian 10YGSEC bond
yield is now hovering around 7.60%, one of the highest in the world and
far more than China at around 3.90% or US at around 2.85%.
A combination of historically higher bond yields, higher interest rates
and higher imported inflation (highly devalued currency) has made India
into a high cost economy over the years, which is now moving towards
stagflation (higher inflation & lower growth). This is in sharp contrast
to the narrative of global goldilocks economy (decent growth & very low
inflation).
The whole Indian economy & consumption story is running on huge currency
leverages and on exporters’ earnings (such as IT outsource) as 1 USD is
fetching 65 INR (vs 6.30 Yuan). Also, DeMo (war on black money) is
affecting Indian consumption story as almost 30% of high value
discretionary spending was dependent on black/unaccounted money.
Looking ahead, market may now focus on RBI (7^th Feb); if RBI takes a
stance of hawkish hold, then expect more pressure on the Indian market
as market will then begun to discount a rate hike by RBI in H2FY19 in
order to keep present policy parity between INR & USD (Fed), everything
being equal.
Today Nifty was supported mostly by TCS, Tech-M, HCL Tech, HUL & ITC by
only 4 points altogether, while it was dragged mostly by RIL, HDFC, HDFC
Bank, ICICI Bank, Bajaj Fin, Maruti, L&T, Axis Bank, IOC & SBI by around
156 points cumulatively.
Overall, Indian market was today helped by techs to some extent (higher
USD), while dragged by almost all the other sectors like banks &
financials, automakers, mixed FMCG, media, metals, pharma, reality,
consumptions, energies, infra; mid/small caps plunged by over 4% as
selling was more intense in the broader market in line with last few
weeks as valuations are at crazy level.
BTCUSD View
<https://www.iforex.in/news/bitcoin-plunged-further-concern-us-japan-regulatory-probe-and-doubt-over-tether-credibility-48673>:
USDJPY View
<https://www.iforex.in/news/usdjpy-caught-bid-blockbuster-nfp-data-solid-wage-growth-couldnt-sustain-us-politics-48699>:
<https://1.bp.blogspot.com/-Np3EsNU6mOU/WnfBzJmCqSI/AAAAAAAAOuE/RmT8_FjDcjM01rKft31kePBXj4bWnbk9gCLcBGAs/s1600/SGX-NF-PATTERN-02-01-2018.png>
SGX-NF
<https://1.bp.blogspot.com/-gkmoTjEzwq4/WnfB2AgvvMI/AAAAAAAAOuI/Pb4rR0E8bi4Nop4zWVU-Pe0yKcSMdqAKQCLcBGAs/s1600/BNF-PATTERN-02-01-2018.png>
BNF
<https://1.bp.blogspot.com/-pVHZCJ4r2Rc/WnfCAPNnG7I/AAAAAAAAOuM/-Ylh_4Y5wq8_CugVtZyBMmgc-QbODMNrACLcBGAs/s1600/SPX-500-PATTERN-02-01-2018.png>
SPX-500
--
Thanks & Regards,
Asis Ghosh
--
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