Market Wrap
<https://www.iforex.in/news/nifty-skids-dragged-infy-over-sikka%E2%80%99s-resignation-and-murkier-%E2%80%9Cwar-words%E2%80%9D-40511>:
18/08/2017 (17:00)
NSE-NF (Aug):9850 (-60; -0.60%) (TTM PE: 25.10; Nr. 2 SD of 25; Avg PE:
20; TTM EPS: 392; NS: 9837)
NSE-BNF (Aug):24094 (-168; -0.69%) (TTM PE: 30.28; Abv 3 SD of 30; Avg
PE: 20 TTM EPS: 795; BNS: 24074)
For 21/08/2017:
*Key support for NF: 9825/9770-9705*
*Key resistance for NF: 9885/9905-9950*
*Key support for BNF: 23925/23850-23750*
*Key resistance for BNF: 24275-24400*
*Hints for positional trading:*
*Time & Price action suggests that, NF has to sustain over 9905 area for
further rally towards 9950/9980-10005/10035 & 10095-10115 area in the
short term (under bullish case scenario).*
*On the flip side, sustaining below 9885 area, NF may fall towards
9825/9770-9705 & 9660-9595 area in the short term (under bear case
scenario).*
*Similarly, BNF has to sustain over 24275 area for further rally towards
24400-24525 & 24675-24750 area in the near term (under bullish case
scenario).*
*On the flip side, sustaining below 24225 area, BNF may fall towards
23925/23850-23750 & 23600-23500 area in the near term (under bear case
scenario).*
*Nifty Fut (Aug)/India-50*today closed around 9850, slipped by almost 60
points (-0.60%) after making an opening minutes high of 9869 and
mid-session low of 9794 amid panic selling in Infy as “war of words”
between the board & its founder (NRN) got murkier following surprised
(?) resignation of its CEO Sikka citing “recent drumbeats of
distractions & sickening personal attacks & allegations” as primary
reasons behind his sudden resignation.
As Infy concall reveals uglier side of the board room battle, the scrip
further tumbled to around 14% coupled with another NRN letter bomb; thus
dragging the index (Nifty) by around 65 points alone at one point of
time as it’s an heavy weight scrip in the index. Sikka’s sudden
resignation may have caused a symbolic loss of around Rs.25000 cr for
Infy investors today.
But, towards the last hour of trading, Infy got some buying/short
covering support on buzz that Nandan Nilekani, another insider trusted
Infy man may be the next man in charge in place of Sikka and it closed
around 10% lower; subsequently Nifty also recovered from day low amid
intense short covering & some value buying. Also, assurance by Infy
chairman that their buyback offer is still valid and co will be guided
by Sikka in this interim period may have also calmed the nerves of the
market today.
Incidentally, Infy scrip yesterday made a 52 weeks high of around 1029
on buyback news and today it made a 52 weeks low of 884 on Sikka’s
resignation !! But, Sikka’s resignation may not be very surprising, if
one follows various events & the co’s own declaration in its last
financial report; the writing on the wall may be very clear; but such
knee-jerk reaction may be also very normal in such scenario.
Sikka was under significant pressure from NRN & other promoter/founders
related groups to declare a good buyback offer to return part of huge
unutilized “cash & cash equivalents in hands” to the share holders as
the co may be finding it tough to grow organically or inorganically,
considering the changing landscape of the Indian IT outsourcing
industry. Almost all the other major IT cos has declared such buyback
offers in the recent past.
Indian market (Nifty Fut/India-50) today opened around 9870, almost 44
points down tracking subdued global cues tracking Barcelona terror & US
political hangover. The market soon came into further stress following
surprised resignation of Infy CEO Vishal Sikka amid an environment of
trust deficit & repeated interference in the functioning of the Co by
its founders.
On the other side of the Infy story, promoter/founders are accusing
Sikka for huge travel expenses by private jets, irrational salary
increase & severance payment to some former employees including Bansal
and an unsatisfactory performance.
Sikka was instrumental in reviving the performance of Infy, since he
took over in 2014 and market has a great trust in his ability; thus his
sudden resignation amid corporate governance & share buyback issues may
have left the investors in jittery and subsequently Infy is down today
by almost 10%, dragging the Nifty index by over 55 points alone. His
resignation may also trigger more attrition among other key Infy people.
After Tata Sons fiasco with Mistry, this Infy incident may also raise
concerns among the investors for the overall corporate governance of
Indian promoters or legacy founders and their relationship with the
professional CEOS in their cos, who are supposed to work for the
betterment of the co independently without much interference from the
founders and is answerable only to the board; i.e. it may be a fight
between promoters & professionals.
Thus, it may be best for the family oriented large Indian cos to appoint
someone eligible within their family as CEO rather than taking service
of an outsider, who may not be their “yes man” always; founders’ family
have to come forward directly to manage their own co at driver’s seat,
rather than trying to operate it through a remote control (puppet).
Traditionally, Indian IT outsourcing industry is a huge USD (FX) earner
and also one of the backbones of the Indian economy. But now, with
changing technical requirement coupled with anti-globalization
narratives in US and also in certain other countries like UK, this may
be a huge challenge for the Indian Govt as unemployment is rising
rapidly, which may also turning into a major political issue in the
forthcoming 2018-19 general election for NAMO.
A raising unemployment in the savvy IT sector may be also bad for the
retail banking NPA, which is already on the upper trajectory apart from
the huge corporate NPA.
Nifty was today dragged by Infy, HDFC, HDFC Bank, VEDL, Sun Pharma,
ZEEL, Tata Motors, Axis Bank, SBI & Yes Bank. Infy alone dragged the
Nifty by over 55 points today, while HDFC duo dragged it by around 19
points.
Nifty was supported today by Bharti Infratel, HUL, TCS, Eicher Motors,
ITC, RIL and Bharti Airtel; telecoms were upbeat today as Govt may
extend some sops to the ailing sector, which may be in line for next
stressed sector for the banks after steel & power. ITC closed in
positive today on buzz of increase in Cigarette prices despite Govt’s
warning about illegal advertisements of Cigarettes, which may be legally
not tenable.
Overall, Banks & Pharma scrips were in pressure today, but a last hour
short covering rally made the Nifty to close 1% higher for the week
against loss of 3.5% in the last week, marked by “Shell cos” fiasco.
Apart from Sikka episode, muted Q1 earnings & NPA concern may have also
dragged the Indian market today amid subdued global cues.
*Globally*, almost all the major Asian markets from Sydney to Tokyo are
now trading in negative tracking subdued global cues & a weak USD after
the tragic terrorist incident at a popular tourist place in
Spain/Barcelona coupled with ongoing US political/policy paralysis and
resignation squabbling (rumour) of Cohn, a key architect of Trump’s tax
reform policy & his chief economic adviser and also the potential
replacement of Yellen.
Although, Cohn has not resigned till now, he may be under immense
pressure from intellect & corporate US to distance himself from Trump
amid his controversial stance on the VA white nationalistic fiasco.
Overall, US political & policy paralysis coupled with poor visibility of
Trumponomics may be huge negative for the USD & risk assets including
equity.
As corporate America is deserting Trump one by one, market may be
unnerved as despite so much Trump tantrum, his corporate circle may be
one of the elements of confidence booster among the investors, as they
still believed Trump’s ability to deliver his Trumponomics narratives.
But, now the whole rhetoric of Trumponomics may be in serious doubt not
only for the ongoing daily US political entertainment, but may be also
for limited fiscal maneuver room in the US budget itself.
Even, Trump’s own RNC GOP members now seems to be distancing themselves
from his controversial hardcore nationalistic/racist image and all these
may be also an indication that days of Trump as US Prez may be over; he
may either resign or impeached shortly.
Although, yesterday’s overall US economic data may be mixed, the ongoing
US political drama, WH hangover coupled with Cohn’s resignation buzz and
above all, the tragic terror incident at Spain has made the USD & risk
assets (US/global equity) lower. As a result, overnight *US market*
(DJ-30/US-30) closed in deep red around 21751 (-1.24%) and *SPX-500
*(US-500) now also trading almost flat around 2430 (+0.14%) on
geo-political risk aversion.
Looking ahead, SPX-500 now need to sustain over 2420-2415 zone;
otherwise 2395-2370 zone may be clearly visible as market sentiment may
be now clearly being driven by geo-politics, rather than economics. The
repeated easy terrorist attacks by a moving vehicle in different parts
of EU, targeting innocent man & women and also tourists may be a blow to
EU’s huge tourism industry & employment.
Elsewhere, *Australian market* (ASX-200) also closed in deep red around
5747, down by almost 0.60% on a higher AUDUSD coupled with some negative
report about AU bank’s credit rating by Fitch on account of CBA’s money
laundering issues involving illegal cash deposits; banks & financials
are dragging the AU market to some extent.
*Japan *(Nikkei-225) closed in red around 19470, down by almost 1.18%
tracking a higher Yen (lower USDJPY) amid ongoing US political jitters
and flight to safe heaven assets on Barcelona terror incident; JPY is
also getting higher against EUR & GBP, putting more pressure on the
export heavy JP index today. But upbeat JP corporate earnings may be
also supporting the overall market sentiment there, but banks,
financials & insurers are dragging the Nikkei today.
*China*(SSE) was almost flat around 3269 (+0.01%), being supported by
upbeat metals & miners on global/EU growth optimism coupled with tighter
supply; solid earnings from some of the leading tech cos. A mixed China
housing price report may be also affecting the overall market sentiment,
as cool down of housing boom may be an indication that China GDP growth
is topping out.
Today PBOC fixed USDCNY a little higher at 6.6744 vs 6.6709 yesterday
and injected net 20 bln Yuan in its daily OMO operations; for the week,
it injected a net 110 bln Yuan against net drain of 30 bln Yuan last
week. This may be also helping the overall stability of China market
this week ahead of Party congress and ongoing PBOC effort of
deleveraging & regulatory tightening.
*Hong-Kong*(HKG-33) was trading around 27060, down by almost 1% on
higher USD & subdued global cues as Trump trade fades; it’s also being
dragged by banks & financials today, but being supported by upbeat techs
& metals.
Meanwhile, *Crude Oil* (WTI) is now trading around 47.25, up by almost
0.40% after overnight plunge from 47.17 to almost 46.45 tracking a mixed
EIA report, which indicates a higher gasoline inventories & US shale
supply despite a surprised Crude drawdown in line with API report;
technically, 46.30 zone mat be an immediate support for the WTI now.
*Gold *is also hovering around 1295, up by almost 0.45% on geo-political
risk aversion and a weak USD; sustaining above 1297-1310 area, it may
further rally towards 1355-1375 zone in the days ahead.
Elsewhere, *EU stocks* are also in deep red tracking terror in
Spain/Barcelona & intensified political hangover at WH and subsequent
risk aversion flows into safe heaven assets; USD is getting weaker
across the board and a strong EUR is negative for EU economy & stocks.
Overall, market sentiment may be now clearly being driven by
geo-politics, rather than economics. The repeated easy terrorist attacks
by a moving vehicle in different parts of EU, targeting innocent man &
women and also tourists may be a blow to EU’s huge tourism industry,
hotels, airlines & subsequently, EZ employment.
Also, market may be increasingly jittery about Trump’s political
immaturity, which may be the prime reason behind today’s WH policy
paralysis; yesterday Trump dissolved his infra council even before it
began functioning, which may be an indication of gravity of the
underlying situation.
The poor visibility of Trumponomics rhetoric may be a major headwind for
the reflation or Trump trade coupled with distancing of the corporate
America from Trump, who may be enjoying some kind of benefit of doubt by
the market so far, being a non-political person having a great business
sense & deal maker!!
*The Euro Stoxx-50*is now 0.90% down and similarly *FTSE-100, CAC-40,
IBEX-35 (Spain)* are all down by around 1% and *DAX-30* is down by
around 0.60%. Apart from Airline, hotels & other tourism related stocks,
Banks are also in pressure for concern of lower Fed rate, which may be
negative for their NIM, operating in US as they can’t increase their
lending rate with a dovish Fed.
Asian market updtae
<https://www.iforex.in/news/asia-trading-red-amid-tragic-terror-barcelona-coupled-us-policy-paralysis-40479>:
FX update
<https://www.iforex.in/news/usdjpy-sliding-towards-108-geo-political-risk-aversion-trump-tantrum-ahead-us-sk-joint-military-exercise-40521>:
<https://2.bp.blogspot.com/-_tRs382KwHc/WZcsa4q6HTI/AAAAAAAAMxg/j3RpW-urhWoXpo7XLi1NFc8q0rhWqpl7wCLcBGAs/s1600/SGX-NF-PATTERN-18-08-2017.png>
SGX-NF
<https://4.bp.blogspot.com/-3Pm6I411AZE/WZcseO44Q4I/AAAAAAAAMxk/YStI56f-d0s5OoKU0EEa3kRBzJZacpPXACLcBGAs/s1600/BNF-PATTERN-18-08-2017.png>
BNF
<https://4.bp.blogspot.com/-7C2ymjeoiXU/WZcskiLwMCI/AAAAAAAAMxo/5XHveyEvHdwR5II8YXBR3fZVgXQqHU70ACLcBGAs/s1600/USDJPY-FIBB-18-08-2017.png>
USDJPY
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Thanks & Regards,
Asis Ghosh
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