Bank Nifty Fut (Jan) : 15800-850 Zone May Be A Big Hurdle In The Days Ahead---

BNF need to sustain above 15800 for further rally towards 16300-16800;

Otherwise 15300-14600 may be on the card again

Oil & China may be the biggest headwinds in 2016 

For global as well as Indian markets; But Fed/ECB/BOJ/PBOC may help

Trading Levels: BNF (Jan)

LTP: 15513

SL=+/-	25 POINTS	FROM	SLR
For	Intraday Swing	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	15840		15945-995	16100-160	16235-310*	16410-570	16700-760	<15790
Weak <	15790		15653-590	15500-425	15365-300*	15260-160	14965-730	>15840
FOR	Conservative	Positional	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	15840		15995	16160	16310*	16570	16760-880	<15790
Weak <	15790		15590	15425	15300*	15160	14730-625	>15840

After 2-3 days of dead cat bounce, global market again retreated today morning, but recovered after the Asian session, thanks to some bounce back in Oil. after some OPEC (Iraq & Kuwait) jawboning about Oil price & production cut.

China is down by over 6% in the morning following  slump in Oil triggered by intensifying global supply glut, unwillingness on the part of Saudi Arab to cut production in the near future and a slowing global demand. 

There were also some report about China may impose fuel consumption tax and a WSJ article, highlighting continued stress on China and further CNY devaluation. 

It seems that, the sharp drop in oil prices, which are down by nearly 75% from its 2011 high (around $115) has fulled mounting risk aversion around the globe since this year and causing global equity markets to a "dooms day" like scenario.

China is acting like a catalyst amid this global "gloom & doom" scenario and although China/PBOC is trying its best and has vast "ammunition in its arsenal", it may take more time to stabilize in its effort to transform itself from an export and manufacturing oriented economy to a consumption & service economy as its involved huge structural adjustments, which may not be possible by short term  magic of  accomodative monetary policy (QQE). 

Also it may not be possible to stabilize Oil around $50-60 with QQE as there are also fundamental and Geo-Political issues involved there. Moreover, its the easy money (QQE), which may be largely responsible for the present state of over production/capacity in commodity space and with China, the global power house slowing down along with tepid real economy recovery in US/EU, adequate demand is not there (i.e. lack of adequate demand despite years of QQE, which is causing the present state of huge demand supply mismatch).

As par reports, average cost of production of Oil may be between $10-20 for Saudi Arab, Iran, Iraq and Kuwait. Oil at $30 may still be above break-even for them, although other oil producing countries are in deep trouble at this rate. 

Oil today recovered from low today after Asian Session as Iran & Kuwait oil ministers jawboned. Finally, some OPEC members are showing some real concerns about the huge crash in Oil and clearly they want Oil to be stabilize around $30. They also believe that Saudi Arab may also be agreed for a production cut as Oil below $30-25 is also not good for the Saudis as they are already facing huge revenue deficit in their budget.

In reality, Oil may see huge short covering, if Saudis come forward with some sort of production cut agreements with Non-OPEC countries along with OPEC. It also seems that Oil producers are definitely hedging their physical stock piles by shorting Oil futures in the market (available up to four years), but that also has some limitation.

If Oil fall below $25 and stays there for some months, it may be a far more serious problem for the global market in the days ahead. 

For India, although, the huge fall in Oil prices is theoretically good for CAD management as a net importer of Oil, but at the same time, Oil export is also down significantly. But, consistent lower Oil prices may also cause significant fund withdrawal from SWF of Oil rich countries, which is more negative for the Equity market than the macro benefit.

Moreover, massive fall of over 60% in Oil in the last few years was not passed on to the end consumers for the infra funding issue. Govt is keeping it virtually at the same level by increasing ED on it repeatedly. 

Be it infra funding, social welfare or revenue deficit management by the Govt, at least 50% benefit should have been passed on to the end consumers. In that case, over the years , we may see some real structural improvement in inflation management, which in turn could pave the way for RBI to become less hawkish. 

RBI may be behind/opposite end of the curve today as all the DM(S) are trying to stimulate their economy/inflation by QQE with virtually Zero rate interest policy (ZRIP) and RBI is now trying to manage the opposite by not getting inflation out of control again.

Clearly, cost of bank funds in India are still at significantly higher rate compared to other DM/G-20 or even some EM(s) and that's a huge difference in this age of globalization. This legacy of high borrowing costs may also partly responsible for the present state of highly leveraged corporate balance sheets and consequent huge stressed assets in the Indian Banking system.

Also, if  benefit of lower Oil prices could be transmitted to the end consumers by even 50%, then it might result in cheaper goods (lower inflation) for the broader economy and significant increase in broad based consumer demands, which is apparently absent today as the much expected overall economic recovery is not happening in the last two years.     

As India is not decoupled with the global economy, our market is now simply concentrating on global news flow with both negative sentiment and fund flows (FPIS), irrespective of  domestic events/Q3 results.

Both PSBS & some Private sector banks are under severe pressure from RBI to clean their books by FY-17 to show real amount of stressed assets and make adequate provisions in the books. Presently, there are various ways that Indian Banks can hide their stressed assets in the reported numbers (such as 5:25 scheme, CDR, SDR, NPL sales etc).

This NPA issue along with slow loan growth is double whammy for Banks and their NIM are also in pressure for transmission of previous RBI rate cuts and change in base rate methodology.

Although Govt may allocate around Rs.10 thousand cr in the forthcoming budget for recapitalization of PSBS, its may be too little & too late. As par various reports, there are around Rs.5 lac cr stressed assets in our banking system and minimum 50% of that amount is required as of now to revitalize the PSBS.

So, 2016 -17 may be a tough year for our banks and overall markets, if we do not see any significant structural improvement in our economy and its effect on the real earnings in the corporate numbers.

In that scenario, Nifty 8000/7500-7000/6300 and Bank Nifty 18000/15800-14600/13300 may be the new normal range in the near term.

Looking ahead, only deleveraging may not work for some of  the highly indebted corporate India.

Technically, BNF may be in the 1-st Wave of new EW cycle in daily chart after completion of the previous EW (1-5 & A-B-C). The normal target of this 1-st Wave may be around 15655, which is already achieved. In that scenario, the corrective 2-nd Wave (if sustained below 15800) may again take the BNF towards 15300-15075-14730 zone. In the alternative scenario, this extended 1-st Wave may further rally towards 15950-16300-16800 area in the near term (if sustained over the 15800 zone).

 

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