Nifty Closed At Multi-Month High Supported By Positive Global Cues And Merger Talks Of Axis Bank Coupled With Strength In RIL And Other Private Banks

Market Wrap: 21/02/2017 (19:00)

Looking at the chart, Nifty Fut (Feb @8908) has to sustain over 8945 area for further rally towards 8995-9035 & 9075-9125 zone in the short term (under bullish case scenario).

On the other side, sustaining below 8925 zone, NF may fall towards 8850-8790 & 8725-8645 area in the near term (under bear case scenario).

Similarly, BNF (LTP: 20855) has to sustain over 20950 area for further rally towards 21050-21200 & 21350-21450 area in the near term (under bullish case scenario).

On the other side, sustaining below 20900 zone, BNF may fall towards 20750-20650 & 20500-20400 area in the near term (under bear case scenario).

Nifty Fut (Feb) today closed around 8908 (+34 points), almost 0.38% higher after making an opening session low of 8858.85 and closing minutes high of 8924.50. Indian market today opened almost flat following positive Asian cues as USDJPY got some strength and Japan was also trading higher amid upbeat Mfg PMI. After midday consolidation, domestic market got further boost from positive EU market following better than expected composite PMI data there. Although EUR was weak for increasing EU geo-political risks, EQ market was upbeat for better EU economic data.

In the 2^nd half today, Indian market sentiment was further improved after rumour of Axis bank merger came; although possible merger of Axis & Kotak bank was in the news for some days, Axis bank management is actively denying it as “mere speculation”. But, as “there can’t be any smoke without a fire”, we may hear something specific about this Axis Bank merger very shortly.

As Govt is holding around 12% of SUUTI stake for Axis Bank, it’s exploring various options actively to sell it shortly and collect a sizeable amount to meet its FY-17 disinvestment target of Rs.45000 cr. Kotak bank, on the other hand is also under regulatory pressure to dilute its promoter stake and in that scenario, merger with Axis Bank may be a viable option apart from some operational synergies. Also, it seems that some other big private banks, such as ICICI, HDFC, Indusind, Yes banks and even LIC are actively engaging with the Govt for the Axis bank stake/merger with themselves. 

Apart from SUUTI stake sale issues, it appears that Govt has less confidence on the Axis Bank management for incremental issues of stressed assets and some unwanted incidents under PMLA after demonetization and as such, Govt may be persuading actively for merger & subsequent change in management of the Axis Bank and put it “on the sale”.

Like telecom and metal/steel space, Indian banking industry may also consolidate in the months ahead as Indian market may not be suitable for so much small banks amid increasing competition from its MFI/Payment bank counterparts & wafer thin margin. A full banking operation is not so easy and thus we may see some consolidation in the private banking space soon apart from gradual consolidation of the PSBS. As par some unconfirmed market buzz, KTK bank may be another candidate for take over and some of the big private banks as mentioned above are also actively exploring various options for it.

Apart from banks, today RIL also supported the market as R-JIO will go for some “payment” mode (for data only) from 1^st April’17. Although, consumers may be slightly disappointed as “Free” data regime will end soon, investors may be relieved to some extent as some revenue will start to flow in from FY-18, although voice will be continued in free mode. As fortunately free data will end soon, Bharti & Idea suffered small damage today, but overall data pricing being offered by R-JIO under 99 lifetime plan may be still considerably lower in the mobile internet space compared to Bharti, but it may be at par with its LL BB (10/- per GB for high end users).

Looking ahead, after the FNO expiry week, domestic market may focus on the state elections outcome, progress of GST, PMI & auto sales data for Feb’17, EU political risk (vote in France), Trump’s actual plan for his tax cuts and fiscal spending and trajectory of USD/US bond yields.

It’s now almost certain that Fed will not hike in March as FFR is now indicating only 20% probability, depending upon the actual trajectory of “Trumponomics”, June’17 might be a “live meeting” for a 0.25% rate hike by Fed (??), despite ongoing spate of hawkish scripts by various FOMC members. A delayed Fed hike may also help the EM currency & market including India.

But, a hurried implementation of GST from July’17 with so many apparent flaws in the design and with so many regulations might be proved as another disruption for the Indian economy after the demonetization.

Also, BMC poll result on 23^rd Feb may also affect the market, being an indirect approval rating gauze for NAMO from the country’s financial hub after demonetization.

 NF

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