Bank Nifty (Mar): Has To Sustain Over 15650-800 Zone For Further Strength

BNF need to stay above 15650-800 zone for further rally up to 16055-16580-17150;

Otherwise, it will face selling pressure and sustain below 15600-460 area,

It may again fall towards 15215-14750-13800

Going by the price action, expected rate cut by RBI (0.25-0.50%) 

may be already discounted to a great extent 

In the near term, too little recapitalization issue may drag the banks 

despite talk of mergers of PSBS ("Gyan Sangam") and recent RBI measures of T1 capital

Trading Levels: BNF-Mar

LTP: 15392

SL=+/-	25 POINTS	FROM	SLR
For	Intraday Swing	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	15650		15750-800*	15865-900	15975-055*	16125-235	16300-350	<15600
Weak <	15600		15500-460*	15435-300	15250-215*	15150-125	15030-810	>15650
FOR	Conservative	Positional	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	15650		15800*	15900	16055*	16235	16350-580	<15600
Weak <	15600		15460*	15300	15215*	15125	14810-750	>15650

As on Q3FY16, stressed assets was at around Rs.4 lakh cr in the Indian Banking System with a major portion belongs to PSBS. As par Govt's own admission and various commentary on the part of the banking management, by Q4FY16, the stressed assets figure may reach around Rs.8 lakh cr and going by the trend, market is apprehending the same may reach to around Rs.15 lakh cr by FY-17 (effect of RBI-AQR).

Some PSBS are also under provisioning the NPA/NPL/stressed assets to the tune of around 55%, whereas by RBI rule, they need to provision it above 70% and if they are compelled to do it by Q4FY16, then we may see more stress on the balance sheets of the PSBS in the coming quarters.

Many of the corporates are under severe stress, specially from metals/steel, cement, power and even some telecom companies. In the absence of any meaningful economic recovery in India and the ongoing global turmoil, some corporates may come under further stress. Although, they are trying to de-leverage by selling assets (core/non-core) to reduce debts, it may be quite difficult to find suitable buyers with good price. At the same time distress selling of assets and earning opportunity from that assets will be a double whammy for the corporates, specially if it is a core asset, contributing to the earnings of a company. 

As real rate of interest (RRR) is very high in India comparatively to the other OECD/DM/EM economies and cost of doing business is quite exorbitant, there is a good probability that a significant proportion of the present "standard assets" of banks may turn into future NPAS/NPLS/stressed assets in the coming quarters. So, unless root cause of the NPA is addressed properly by the policy makers, this type of NPA issues and banking crisis may be a regular cyclical feature of Indian Banking system and even so called retail oriented private banks will not be spared.

Also, the present NPA mess and the ongoing bank/investigating agencies/media/public pressure on some of the defaulters (genuine or willful) may scare the future genuine borrowers and corporate/SME credit growth of banks may dip significantly. 

The PSBS recapitalization amount of the Govt is too little and too late. Although, Govt is constantly assuring that there will be no funding/recapitalization issue of the PSBS and GOI may sell some of its stake in PSU/SUTTI to fund PSBS, in reality in the current market condition, it will be like distress selling and market may panic more.

Also, the Govt's proposal of merging 26 PSBS into 6 big size banks (like SBI) may be a long term plan and may face immense banking trade union/political pressure.

As par some reports, Govt may also bring a "bankruptcy code" for the bank also, which will pave the way for an orderly closure of a loss making bank. But, in a socialistic democratic country like India, this may invite more political backlash.

After 2016 budget, there were mainly two triggers (expected RBI rate cut and RBI proposal to permit bank's real estate properties/own branches as part of tier-I capital after reasonable hair cut) apart from huge technical short covering, which was responsible for the recent run up.

But, there is real doubt about the fund raising capability of the PSBS (except SBI) considering the present condition of their own balance sheets and effectiveness of the RBI-T-I capital measure.

In all probability, FED will keep its "wait & watch" policy along with slight hawkish tone at least till Dec'16 to keep USD in balance wrt to divergent loose monetary policy of ECB/BOJ and PBOC. This will pave the way for RBI for a 0.25-0.50% rate cut before monsoon, depending upon the inflationary road map of India. 

As there is some doubt about the projected 3.5% fiscal deficit figure in the GOI budget, actual disbursement of the 7-PC and its inflationary impact on the economy, previous rate cut transmission issue by the banks, IMD/Skymet forecast about monsoon this year, RBI may cut only by 0.25% this time with a cautious/hawkish tone and keep option open for another 0.25-0.50% by Oct'16.  

The primary issue here is full transmission of RBI cut to the borrowers/economy. But unless and until the NPA issue is resolved to a great extent and abnormal high savings rate in some of the Govt sponsored scheme (like MIS/Postal/EPF/PPF etc) are reduced, banks will be not in a position for full transmission of rate cuts.

In a country like India, there will be severe political risk for any Govt to reduce drastically the above Govt sponsored high interest rate (small savings) and unless & until, borrowers can't get the full benefit of the lower rate, there will be significant stress in corporate/SME or even personal loan book of the banks.             

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