Bank Nifty Fut (Sep): 20750-950 May Be A Big Hurdle Despite "Power Of Liquidity" And Sustain Below 20200, "Fed Fear" May Drag It To 19200-18900

Trading Idea: BNF (Sep)

LTP: 20350

Either Sell around 20200-20400 OR on rise around 20750-20950;

TGT: 19940*-19850-19650-19450*-19150-18940*-18600-18350-18200-18000 (5-30 days)

TSL> 20575/20675 OR > 21100

Note: Consecutive closing (at least 3 days) above 21100 for any reason whatsoever, BNF may further rally up to 21500-21700 & 22200-22900 in the near to mid term (alternative bullish case scenario from the current trading level).

Any one holding long position or wish to be in long, may also watch the 19940-450 zone as positional support for BNF.

TTM EPS of Bank Nifty (Spot) is around 678 and at recent high of around 20565 the TTM PE was around 30.33 and it it goes around 20900 zone (life time high), then FY-16 TTM PE will be around 30.82 and at 31 TTM PE, it may be quite expensive, whatever be the expected tailwinds.

If we consider 15% EPS growth for the Bank Nifty by FY-17 considering the overall scenario of the next generation banks (IIB/Yes/Kotak @30% CAGR ??) and somewhat tepid earnings of the Axis & ICICI banks and the PSBS along with "rock solid" performance of the HDFC, FWD EPS may be around 780 and in that scenario FY-17 FWD PE may be around 26.80, which is also quite expensive considering the mean historical PE of around 18-20.

Thus this is a pure play of liquidity irrespective of any rationality or irrationality. Due to limitations of further ammunition, Fed and other G-3 central bankers (BOJ/ECB/PBOC) may be forced to be on the side line until we have some unexpected geo-political & economic shocks and Govt has to provide more fiscal as well as structural measures.

Clearly, the present hawkish Fed stance is designed to help BOJ which is in dire need of weakening its own currency (Yen) to help its export and stalling economy. Its may be a strategic plan of G-20 to indulge in continuous verbal jawboning as there is little ammunition left.

Its almost sure that Fed will not hike this month (Sep), just before the US election, but in Oct-Nov we may see some real market reaction depending upon the probability of either Clinton or Trump.

It will be double whammy for Fed, as it has to show confidence in the US economy before the Presidential election and at the same time has to hike in Dec'16 to just ensure that it will not fall behind the curve.

On the other side, if  Trump wins, then Fed will be on hold for 2017 (forget about Dec'16 hike) or forever, but "Trumpism" is itself can cause a "dooms day" scenario for the global as well as the Indian financial market.

For Indian banks, NPLS may be the biggest concern as mere recognition is not enough, what it required is actual resolution (repayment process). As par some reports, almost 15-25% of the Bank's loan book may be stressed, specially for the PSBS.

As par some market talks, hidden NPLS may be the actual reason behind the epic fiasco of the recent Yes bank QIP failure. 

  

BANK NIFTY FUT