Looking at the chart, BNF has to sustain above 16000-16150 for 16350-16450*-16925-17150 area; otherwise, it may face selling pressure and sustain below 15800-15500, it may again fall towards 15225-14800 zone in the near future.
Trading Idea:BNF-MARCH
CMP: 15725
Sell either below 15800 or on rise around 16000-16100;
TGT: 15500-15355-15225*-15100-14995-14820-14615-14550 (1-5 days)
TSL> 16150
TSL/ALL other levels (+/-) 50 points
Note: Consecutive closing (3 days) above 16150 for any reason, BNF may further rally up to 16350-16450*-16925-17150 in the near term (alternative bullish case scenario from the current trading level).
BNF made a smart rally of above 19% (2600 points) from the budget day low of around 13405 to the recent high of 16005 in the last few weeks primarily on the back of rate cut hopes by RBI on 5-th April'16.
Although rate cut of 0.25% is almost certain, going by the recent deposit rate cuts in various small savings instruments by the Govt, this time RBI may cut by 0.50% and the recent time & price action may be indicating that rate cut of 0.50% is almost discounted.
There are mainly two scenarios for the forthcoming RBI cut:
1. RBI cut by 0.25% in April and keeps a cautious/hawkish tone about monsoon/inflation etc and indicate that it will be accomodative for another rate cut of 0.25% in August'16. BNF may crash heavily under this scenario as it is already discounted rate cut by 0.50%.
2. RBI cut by full 0.50% in April'16, indicating that the rate cut cycle may be over in the near term (FY:17) and throw the ball to the Govt for inflation (CPI) below 5% and structural/policy reform. RBI may also emphasis on the rate cut transmission issues by the banks and management of NPA. In this scenario, BNF may show a whipsaw movement by jumping instant 100-200 points and then again fall (buy on rumour and sell on news).
Market may also look into any liquidity enhancing measure by the RBI, such as CRR/SLR/MSF rate cut/tweaking as Indian Banking system, specially PSBS are under severe stress.
Looking forward, as par various reports, total stressed assets may reach around Rs.8 lakh cr in FY-16 and by FY-17, it may reach around Rs.11-15 lakh cr (around 15% of gross advances by banks). The huge provisioning along with incremental credit costs and subdued fresh credit growth may keep the bottom line of the PSBS under huge stress in the coming quarters.
Now, all will depend upon the standardization, recovery of the stressed assets and unless there is visible uptick in overall economic/industrial recovery, the current NPA mess may not improve much and more over, we may see fresh addition of NPA(s) in the coming years.
As cost of doing business in India is quite high comparable to other advance economics and unless real rate of interest for borrowing needs of corporates/MSME reduced to an appropriate level by structural reform, the present condition of stress assets may continue. In India, average borrowing rate for business may be between 10-12% and thus the RRR for industry/MSME may be around 5-7% (assuming average CPI around 5%), which is very high and primarily responsible for the present state of stressed assets apart from business management and demand supply dynamics.
Overall state of the current situation in PSBS may be termed as a "Mini Banking Crisis" in India and the Govt's recapitalization effort may be too little and too late !!
Analytical Charts:
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