Bank Nifty(Apr) Update: Sustaining Below 15750-15450, Can Fall Up To 15100-14800 In The Near Term

Technically, BNF (LTP: 15876) has to sustain over 15750-16050 zone for targets of 16250-16350 & 16350-16450 area in the short term.

On the flip side, inability to sustain above 16050, it may face some selling pressure and below 15750 zone, BNF may again fall to around 15450. Only consecutive closing below 15450 area, it may further fall towards 15100-14800 zone in the near term.

The above view of the BNF is based upon the trading idea posted on 4-th Apr as :

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).

 

 

Yesterday, after trading in the negative territory for most of the days, market suddenly turned up quite vigorously from the respective positional support level (NF around 7540 & BNF around 14450) on the back of short covering and some value buying. This was mainly caused by some dovish BOJ comments and forecast of better monsoon this year by the Govt/IMD/Skymet. Also there was some "Bad Bank" idea for the stressed assets in the banking system of Italy, which helped the EU stocks. Back home, there was some report that in Q4, we may have EPS growth of around 5.7% (YOY) & 7.8% (QOQ) for the Sensex stocks, which also helped a bit.

But overnight, SPF lost its early momentum and fall in the negative zone amid confusing chatters by different Fed speakers. Although, market is pricing no rate hike in June'16 at present, Fed's stance/tone may change in the forthcoming Apr meeting to say that "door is quite open for a possible June hike and each & every meeting is live" as concern about China is "steadily diminishing" and Fed may help BOJ this time to help depreciate the growing strength of Yen (Coordinated action ?). Any additional QQE by BOJ & Fed's hawkish stance in Apr end, may help BOJ to avert a real FX intervention at this stage.

Locally, all eyes will be on the real Q4FY16 numbers and further projections and Govt's ability to carry forward the ongoing reform process in a meaningful & effective way. Although, 2015-16 may be termed as a year of "deleverage" for corporate India, lots have to be done and going by the present scenario, it may be quite difficult to find a suitable buyer for deleveraged assets, if the product's demand supply dynamics is not very good. Recent Tata Steel asset sales initiative for the loss making UK business may be an example, in which there is no material improvement for the huge debt level.

 

Looking ahead, India's so called pain of "twin balance sheets" may remain for some more years as both corporates (specially some selected groups) and banks (specially PSBS) are quite stressed.

 

Whatever may be the outcome of the monsoon this year, adequate rate cut transmissions by the banks will be vital for RBI to cut another 0.25% in Aug. Going by the present scenario of NPA/stressed assets, it may be quite difficult for the banks to transmit fully the FY-16 rate cut by the RBI (1.25%) as only 0.6-0.70% is transmitted so far. Transmission of another 0.65% in the next 2-3 quarters by the banks looks difficult as this may affect their NIM/NII quite adversely amid incremental higher provisions possibility for the stressed assets/RBI-AQR.

Also, new corporate/business loan growth may not be great in the days ahead amid a fearful situation out of the present KFA loan fiasco as no one want to be in a "debt trap" for business expansion/diversification by taking more loans from the banks. For banks, be it "wilful" or otherwise, its a pure NPA and they have to provide for it in the balance sheet/P&L A/C. So, if the present NPA mess is not rightly tackled by the Govt/banks, normal economic activities may suffer in the future and both banks and business/industry may be in some kind of paradoxical situations.

Technically, BNF may be in the corrective A-Wave after completing the last impulsive 5-th Wave (unusual impulse of around 300% of the EW-1 length of 965). The text book target of the present EW-A may be around 14550 (already achieved) &13406. This scenario will be invalidated, if BNF sustained above 16350-16550 zone and in that case, it may further rally up to 16900-17150 in the near term.

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