*With today’s close, Nifty finished the week almost 1% higher cheering
better prospect of monsoon as predicted by the IMD; what’s next?*
*Market Wrap: 12/05/2017 (17:00)*
*NSE-NF (May): 9420 (-19 points; -0.21%)*
*NSE-BNF (May): 22684 (-158 points; -0.69%)*
*For 13/05/2017:*
*Key support for NF: 9380-9340*
*Key resistance for NF: 9485-9515*
*Key support for BNF: 22600-22500*
*Key resistance for BNF: 22775-22875*
*Time & Price action suggests that, Nifty Fut (May) has to sustain over
9485 area for further rally towards 9515-9550 & 9600-9680 in the short
term (under bullish case scenario).*
*On flip side, sustaining below 9465-9425 area, NF may fall towards
9380-9340 & 9295-9245 area in the short term (under bear case scenario).*
*Similarly, BNF has to sustain over 22775 area for further rally towards
22875-23000* & 23075-23200 area in the near term (under bullish case
scenario).*
*On the flip side, sustaining below 22725-22600 area, BNF may fall
towards 22500-22300 & 22050-21950 area in the near term (under bear case
scenario).*
Nifty Fut (May) today closed around 9420, down by 0.21% after making a
day high of 9443 and low of 9389. Indian market today opened almost flat
following tepid global cues. Overnight US market also closed almost flat
(-0.11%), although off deep lows after better than expected PPI data.
But overall sentiment was very gloomy amid terrible Q1 numbers of some
of the leading retail giants, which may have also undermined the
underlying US economic recovery as it is indicating poor retail sales
and subdued consumer spending & sentiment.
In that sense, today’s CPI & retail sales data for US may be very
crucial for Fed to take some clues about the June rate hike and
communicate with the market accordingly as FFR is now indicating almost
90-100% of a June rate hike with barely a month in hand for Yellen to
telegram properly. Any late dovish stance by Fed may be proved as a
disorderly volatility for USD & “risk on” sentiment later. Despite
blockbuster headline US NFP, wage growth may be still tepid in US, which
in turn may also be affecting disposable income, discretionary spending
and overall retail sales (consumer spending) & GDP for the economy.
Another point may be that US consumers are already under heavy debt
repayment pressure and as such tepid wage growth may be another headwind
for discretionary spending & overall consumer sentiment.
Back to home, among all these ongoing global concerns, Indian market
today also opened in flat note following contradictory forecast of this
year’s monsoon by IMD & Skymet. But soon after 1^st hour of trading,
market sentiment was severely affected as reports of NPA divergence for
FY-16 hit the Dalal Street from the Mint Street for Yes bank. Similar
reports of significance divergence between some other private banks like
ICICI & AXIS also hit the bourse today.
Although, these divergence may be due to the the earlier RBI AQR period
and may have already disclosed and reconciled in the FY-17 annual
report, the amount of divergence is significance and in the weekend,
market is expecting that both the banks (Yes/ICICI/Axis) & the regulator
(RBI) will come forward for an explanation & more lights on it.
Today most of the private banks except Kotak & HDFC bank has suffered a
lot and also dragged the overall market sentiment for the Satyam style
balance sheet cooking. If these reported anomalies are true in their
essence, then investor’s confidence may be also shaken on the overall
Indian market.
Towards the end of the market, Govt announced some hints (unofficially)
for the proposed GST rates & also some steps for reviving telecom sector
(telecom & GST reform) and the market rebounded from its day low to end
almost flat (“dips converted quickly into a drop”).
Regarding monsoon, as par Skymet, Indian market may be celebrating early
for the better than expected monsoon by the IMD (as SKYMET has warned
against “irrational exuberance”); Skymet is cautiously optimistic on
monsoon (at 96% LTA), whereas IMD has predicted more than normal monsoon
this year (>100% LTA). Although, 4% variations in absolute amount of
rainfall may not matter so much for the overall rural Indian economy,
actual distribution & timing of the same may be more vital (in 2016,
rainfall was 97% of LTA).
Apart from monsoon, GST implementation from July’17 (?), ongoing NPA
reform/resolution process, market may also focus more on the Q4 report
card of Indian corporate, which is so far termed as mixed; Nifty is
trading around TTM PE of 24, may be assuming a 24% CAGR of EPS for
FY-18, which may be quite tough to achieve, considering both short &
long term trend and various macro economic factors.
Today global rating agency Fitch also came forward in response to
yesterday’s acquisitions by the Indian CEA for double standards in
rating parameters. As par Fitch, Indian Govt’s incremental debt
(combined debt/GDP ratio), combined high fiscal deficit and earlier high
current account deficit (CAD), ease of doing business, structural high
inflation, high banking NPA & recapitalization issues of the fragile
PSBS, twin balance sheet problem, tepid private investments are
obstructions for India’s rating upgrade despite high GDP growth
(although on lower base), a strong INR and Govt’s effort of incremental
reforms. Going forward, if the above parameters are improved and Govt’s
ongoing NPA resolution effort yield any meaningful result, then Fitch
may consider India for a rating upgrade. Thus, rating agencies may not
be in a hurry to upgrade India despite so much effort (pressure) from
the Govt/policy makers and this may have also affected the domestic
market sentiment today.
Meanwhile, Indian CPI, WPI both just flashed below expected; but IIP
data disappointed at a glance. Although this may be due to favourable
base effect of new series (2011-12), market may also speculate about
probability of a RBI rate cut in the coming days, which in turn may also
give some sentimental support for the market on Monday (?); but RBI,
being in neutral mode may not oblige so easily, considering various
other factors.
Today, after market hours, some of India’s macro data flashed as:
WPI (Apr): 3.85% (estimate: 4.79%; prior: 5.29%-R) (New series: 2011-12)
CPI (Apr): 2.99% (estimate: 3.49%; prior: 3.89%-R)
*Core CPI (April): 4.5% (prior: 4.9%)*
IIP (March): 2.7% (estimate: 1.5%; prior: 1.9%-R) (New Series: 2011-12)
Sticky core CPI around 4.5-5% can made the RBI somehow hawkish in the
days ahead and together with GDP growing around 7-7.5%, the Indian
economy may be too hot and thus does not require further repo rate cuts
by the central bank (pure growth vs inflation equation).
Due to new inflation series and subsequent volatility, RBI may not
consider the high real rate of interest (RRI) or neutral rate of above
3% from its original projection of around 1.5% (Repo rate-CPI) and thus
continue to be in neutral mode waiting for more evidence of actual
inflation moderation in India. RBI may take cautious stance considering
any adverse effect of GST, monsoon & 7-CPC arrear on the CPI and thus
may also keep its “wait & watch” stance in the coming months.
RBI, today also cautioned India’s high combined fiscal deficit due to
ongoing incremental high Govt capex and hopes that Govt will take
necessary steps to reduce the high fiscal deficit in the coming days.
RBI also raised its concern over farm loan waivers & any revenue risks
for GST implementation.
Meanwhile, US flashed its core CPI & retail sales data quite subdued as:
Core CPI (Apr): 0.1% (MOM); estimate: 0.2%; prior: -0.1%
Core CPI (Apr): 1.9% (YOY); estimate: 2%; prior: 2%
Core Retail sales (Apr): 0.3% (MOM); estimate: 0.5%; prior: 0.3%
Retail sales (Apr): 0.4% (MOM); estimate: 0.6%; prior: 0.1%
*As a result, USDJPY, which was already facing significant resistance of
the 114.50-115.50 zone; is now coming down for 113.15-111.15 & 108 zone
in the coming days;*Fed’s June hike plan may be off and “risk on” trade
may also face serious questions amid Trump’s political squabbling &
alleged Russian links controversy.
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SGX-NF
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BNF
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USDJPY
--
Thanks & Regards,
Asis Ghosh
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