Is the worst behind for India markets?
India Financial markets was stuck by Tsunami from China, opening up downside risks on global economic growth and fear of FII pull-out from Emerging Markets. The worst hit was India equity assets and Rupee exchange rate. The intra-August crash in Nifty was sharp from 8621 to 7667, so is in Bank Nifty from 19103 to 16670 before modest recovery into 8091 and 17569 respectively which couldn't hold building bearish momentum at 7950 and 17000. The said moves are more or less to the script; MARKET PULSE set NIFTY overshoot target through 7950-8000 into not beyond 7500-7650 short term base for consolidation at 7950-8100. Bank NIFTY was seen to crash below 18000-18100 into 16600-16750 base before consolidation at 17000-17650. In the meanwhile 10Y Bond 7.72% 2025 has traded back-and-forth at 7.73-7.93% before consolidation at 7.75-7.80%. Rupee met the value adjustment target of 66.60-66.85 (low at 66.76) from set USD/INR strategic base of 63-63.35 (low at 63.30), while 12M $ shot up from 67.75-68 to target 71-71.50 b4 consolidation at 70-71 (spot at 65.85-66.50).
The recovery in domestic markets is lead by sharp recovery in global markets; DJIA held at set 15100-15350 support (low at 15370), seen as strategic base to hold sharp reversal from recent high of 18350 (door step of 18350-18500 strategic resist and hot-to-hold zone). US 10Y yield also held at 1.95-2.0% for recovery into 2.20%. USD Index DXY held at 92.50-93 support for recovery into 95-96.50. All was good to dilute the pent up bearish momentum, but not seen to be well as yet to get into bullish momentum.
What next? Sentiment mixed between risk-off and neutral in wait-and-watch mode
All is not well in the short term against suspect global cues. The tailwind support from external cues is now behind. The best hope is for dilution in Tsunami kind of headwinds from the China and the US. China monetary and exchange rate moves (seen as steroid boosters to hold its exports competitive to EM peers) is not seen to be over as yet. US start of rate hike is only seen to be delayed within target time line of September - December 2015. The comfort however is from RBI shift into dovish monetary policy stance and confidence on the stability of the macroeconomic fundamentals, with concerns only on the GDP growth trend into higher side of 7-8% target. Both combined, India is seen to perform better than other EMs - most seeing India as the best amongst the worst. Is this sentiment good enough to attract offshore appetite on India markets? Or only good enough to limit reverse flow? All taken for short term, investor sentiment (and confidence) is not in favour to set up bullish momentum for rest of 2015. While staying risk-off is extremely conservative, it may be prudent to see rest of 2015 for value-buy for resumption of bullish trend on shift into 2016. The game on India 2015 was over in Q1 and Q4 is the position build phase for 2016.
Equity markets undertone mixed between nervous external cues and comfort from domestic cues
India equity markets continue to stay nervous from impact of next steps from PBoC and rate hike action from the FED. Both combined will not be easy to absorb, notwithstanding pipeline rate cut from RBI. For now, retain focus in NIFTY at 7500/7650-8100/8250 (Bank Nifty at 16500/16750-17500/17750). The break out bias is mixed but seen not beyond 7000/7150-8500/8650 (Bank Nifty at 15850/16100-18850/19100), significantly below the Q1/2015 high of 9119 and 20907 respectively. It is possible that 2015 low may get punched during Q4/2015, where strategic value buy interest would emerge for 2016 bull run. For now, it is good to keep September Nifty focus at 7500/7650-8100/8250 (Bank Nifty at 16500/16650-17500/17650) with most trades at inner ring in sideways mode, while extension into outer corridor will be tough to sustain for long.
India Gilts retain consolidation mode
India 10Y bond has already seen multiple back-and-forth at set big picture focus at 7.73-7.93% with failure at duration-cut zone of 7.68-7.73%. The comfort however is from hold at value buy zone of 7.88-7.93% zone. While there is confidence on long term hold at 7.90-7.93%, cues are mixed on sustainable bullish undertone at/beyond 7.70-7.73%. While RBI dovish monetary policy stance stay in support for short term consolidation at 7.68-7.78% post 25 bps rate cut (with most trades around par value 7.72%), extent of impact from FED rate hike is not clear. All combined, continue to retain short term focus at 7.68/7.73-7.88/7.93% with most trades at inner end. For now ahead of 29th September policy review, stay focused at 7.72/7.75-7.80/7.83% with bias into lower end before back-and-forth consolidation.
Rupee is due for minor downside value adjustment before stability
USD/INR adjustment from 63-63.35 to 66.60-66.85 is done; thereafter, correction mode held at door step of revised base at 65.50-65.85 for consolidation at 65.85-66.50. What next? Most cues do not suggest shift into Rupee bullish momentum as yet, given the fear factors from importers and FIIs in the short term retaining near term focus at 65.85/66.10-66.85/67.10, not ruling out stretch into 68.85 before stability at 65.85-68.85. The hedge strategy is for importers to stay risk-off (or neutral) upto 3 month exposure at lower end, while exporters to look at 6-12M cover at 67.35-68.85 (12M $ at 72-73). All combined, long term strategic focus is retained at 65/66-69/70 through rest of 2015 and on shift into 2016. For now, September play is not seen beyond 65.60/65.85-66.85/67.10, with RBI protection at either end.
EUR/INR has been explosive on break out of 68.65/69.15-71.65/72.15 consolidation range for spike into 78-78.50 before push back to 73.50-74.50. The upside bullish momentum is largely from USD/INR (up from 63.35 to 66.85) against volatile EUR/USD at 1.10-1.15/1.17. What next? EUR/USD bias beyond 1.10/1.1050-1.15/1.1550 is not clear with good comfort on USD/INR near term stability at 65.85/66.10-66.85/67.10. Combining these, the near term focus is at 72.65/73.15-76.65/77.15 and good to stay focused at end to end.
Moses Harding
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