Bank Nifty(Apr): Need To Sustain Abv 16350-550 For Further Rally, Even If RBI Cut By 0.50%

Technically, for BNF, sustaining above 16350-16550 zone, we may see 16700-16900*-17150 zone in the short term

On the other side, sustaining below 16315-16140 zone, BNF might face intense selling pressure and may fall towards 15750-15205-14600 area in the near term.

Trading Idea: BNF-Apr

CMP: 16244

Either sell below 16350 or in rise around 16450-500;

TGT: 16060-15950-15750*-15445-15205-15050-14800-14600 (5-15 days)

TSL> 16550

(SL=+/- 50 points from TSL)

Note: Consecutive closing (3 days) above 16550 for any reason, BNF may further rally up to 16700-16800-16900*-17150 & 17350-17580*-17750-17805 in the near term (alternative bullish case scenario from the current trading level).

As par some calculations, CPI may reached around 4.5% by March'16 and based on that assumptions and other tepid macro data and good fiscal management by the Govt, RBI may try to kick start the economy/investment cycle by lowering rate by 0.50% to 6.25% (in that case RRI would be around 1.75%, which will be in the preferred range of RBI at 1.5-2%).

In contrast to the above view, some other analysts are apprehending that RBI will wait for monsoon forecast and actual distribution of the same along with effect of 7PC on the wage inflation till Aug'16. Only then it may cut by another 0.25%, if actual CPI hovered around 4.5% till then.

So, going by the recent price action, BNF may be already discounted for RBI rate cut of 0.25% and even by 0.50% to a great extent. If, RBI cut only by 0.25%, then market/BNF will be sold off and even it cut by 0.50%, then after a brief rally of around 200 points, it may again sold off (Another "Buy on rumour and sell on news" ?).

If RBI cut by 0.50%, market may take this as end of rate cut cycle in FY-17 unless CPI drastically fall below 4%. Also there will be issues of rate cut transmissions by banks and this time banks can't complain about relatively higher interest rate in small saving instruments as an issue for passing of rate cut benefits to the borrowers. The main issue will be the ability of the stressed corporates/MSME to borrow further and bank's (specially PSBS) ability to extend credit further too amid huge NPAS and liquidity problem.

Any action by RBI to enhance the immediate liquidity issues ( CRR/SLR/MSF cut ?) may also help the BNF to some extent.

BNF rallied by more than 22%  since budget day low in the last one month and technically may be in an extreme overbought zone. In the daily EW cycle, BNF may be in the 5-th wave (impulsive) and already rallied by over 300% of the length of 1-st wave and if it does not sustain above 16350, then the next corrective A-wave may bring it to around 14500 zone. Sustaining above 16350, the above scenario may be invalidate and BNF may further rally up to 16550-16800 zone where it may face some good resistance.

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