Bank Nifty Fut (July): 19300-19500 May Be A Big Hurdle Despite Expected PSBS Recapitilization Announcement By The Govt & Aug Rate Cut Hope

Trading Idea: BNF(July)

LTP: 18925

Sell either around 19050-19150 OR on rise around 19300-19400

TGT: 18700*-18450-18150*-17900-17700-17450*-17100-16900-16590*-16495-16200 
(5-15 days)

TSL> 19200 OR > 19500

Note: Consecutive closing (3 days) above 19500 zone for any reason, BNF may further rally up to 19650*-20150-20750-20950*-21150 area in the near term (alternative bullish case scenario from the current trading level).

BNF rallied significantly by over 40% in the last five months (from the budget day low).

Some of the reasons & points may be noted:

1. Fiscal discipline adherence by the Govt in the budget and subsequent rate cut by the RBI (although rate cut was 0.25% against expectation of 0.50%).

2.Some liquidity enhancement measures by the RBI in its June policy including OMO.

3. Hopes of further rate cut (0.25%) in the forthcoming Aug policy meet on the back of good monsoon; but inflation trajectory may bar RBI for an immediate rate cut in Aug, which will be also the last policy meet by Rajan. 

4. Market is awaiting for the official announcement of the new RBI Gov, who may be quite market friendly and apparently a "yes man" of the Govt unlike Rajan, who prefer more independence structure of the RBI without much influence from the "growth hungry" Govt.

5. Most probably, RBI will not cut in Aug and may offer a "Dewali Gift" to the nation by cutting 0.25-0.50% in its Oct meet by the new RBI Gov.

6. More than repo rate cut, overall liquidity & NPA management is now more important for the banks (specially for the PSBS) to transmit the full previous rate cuts by the RBI. So far, around 50% of the previous rate cut of 1.50% is transmitted by the banks.

7. If there is an attempt to cut repo rate drastically without controlling the CPI properly, which is more structural in nature, INR may devalue significantly which may result in a massive bond market sale, which will be also not good for the overall Indian EQ market.

8. Market is expecting at least Rs.30000 cr of new capital infusion announcement by the Govt for FY-17 under the current "Indradhanush" programme by the Govt for the PSBS. But, as par some market talk, Govt may announce only Rs.20000 cr for this FY-17. Overall, the proposed recapitalization amount of Rs.75000 cr (till FY-20) under the Indradhanush programme may be too little & too late.

Analytical Charts:

Article Courtesy: Frontiza.com