Market Wrap: 06/04/2017
(19:00)
NSE-NF (April): 9264
(-23 points; -0.24%)
NSE-BNF (April): 21615
(-69 points; -0.32%)
For 06/04/2017:
Key support for NF: 9225/9195-9115
Key resistance for NF: 9305-9375
Key support for BNF: 21650-21450
Key resistance for BNF:
21775-21875
Time & Price action suggests that,
Nifty Fut (Apr) has to sustain over 9325 area for further rally towards 9375-9425
& 9465-9505 by tomorrow / in the short term (under bullish case scenario).
On the other side, sustaining below 9305
area, NF may fall towards 9250-9225/9195 & 9150-9115/9085 area by tomorrow /
in the short term (under bear case scenario).
Similarly, BNF has to sustain over 21775
area for further rally towards 21875-21950 & 22050-22150 area by tomorrow /
in the near term (under bullish case scenario).
On the other side, sustaining below
21725 area, BNF may fall towards 21650-21500 & 21400-21200 zone by tomorrow
/ in the near term (under bear case scenario).
Nifty
Fut (Apr) today closed around 9264, marginally lower by 0.32% after making a
session low of 9231 & high of 9283 in a RBI day of moderate volatility.
Indian market today opened in a negative tone following tepid global cues after
FOMC minutes revealed Fed’s intention of its balance sheet deleveraging and
concern about US stock market bubbles.
As
expected, RBI today hold the repo rate (6.25%) with some concern about upside
risk of underlying inflation coupled with optimism about growth of the Indian
economy. So, in short today’s stance of RBI may be best described as a “hawkish
hold” or rather an “owlish hold”. RBI may not cut further in FY-18 due to
upside risk in CPI/core inflation as well as the upbeat GVA projection at 7.4%
on an average from 6.7% average in FY-17; when an economy is growing around
7-8% (GDP) with a headline CPI of around 4-5%, there is no need for an
incremental cut by a central bank to prevent overheating of the economy. Thus,
RBI will be in neutral stance, if not hike in H2FY18, considering the growth vs
inflation equation.
But,
RBI today unexpectedly hiked reverse repo rate (RRR) by 0.25% to 6% and also
lowered the MSF & Bank rate by 0.25% to 6.5%; thus effectively narrowed the
LAF corridor in its effort to bring the overall excess liquidity position of
the banking system to neutral. The hike in reverse repo rate without hiking the
corresponding repo rate may be beneficial for the banks to some extent as
lending to RBI will fetch more return (+0.25%). Similarly, cut in MSF &
Bank rates may be also good for the banks, especially for the new generation
Pvt banks (IIB, Yes, Kotak) as they traditionally use this short term borrowing
facility from the RBI in case of emergency requirements. But, all these perceptions
may be good for theory and may not yield any real push for NIM in practical as
the banking system is already flushed with DeMo related excess funds with
little incremental demand for credit.
Bank’s
interest costs (MCLR) is dependent on various factors & liquidity and repo
rate is one of them. After DeMo or even before that, there was no significant
crisis of liquidity in the Indian Banking system, except some of the fragile
PSBS. Also banks has already transmitted a major portion of the previous rate
cuts by the RBI after NAMO’s indirect intervention in his 31st Dec’16 year ending speech to the nation. The problem
is now of stressed assets with the banks & lack of quality & eligible
healthy borrowers in the system; i.e. issues of twin balance sheet. Unless the
problem of NPA is solved and there is visibility of incremental demand, full
capacity utilization and private investments, credit growth of the banks may be
remained subdued irrespective of the banking liquidity & lending rate
factors.
RBI,
today again indicated comparatively higher deposit rates for the Indian small savings
instruments, which may be a major hurdle for the banks to transmit further rate
cuts to the borrowers. Thus, resumption of private investments cycle, NPA
resolution & further rate cut transmissions may be all structural issues,
which may be best addressed by the Govt under its various reforms measures and
eventually, RBI pushed the ball to the Govt’s court.
Some
market participants may be also apprehending a CRR hike today by RBI to absorb
excess liquidity as SDF facility will take time. But, there was no such CRR
hike and moreover, RBI has also permitted the banks to deploy some of its
excess funds to the REIT & INVIT (real estate & infrastructure
investment fund), which has caused some short covering or rally in real estate
stocks. But, such REIT investment benefit may be very limited as it involves
only commercial real estate.
In
short, today’s RBI policy may be described as:
Hawkish on inflation: Due
to probable El Nino effect on monsoon & deficient rainfall this year, GST
& 7-CPC arrear effects, external factors such as higher commodity prices
despite a strong INR; RBI projected headline CPI at 4.5% & 5% for H1 &
H2FY18 and it may even hike repo rate in H2FY18, if there is incremental
pressure on inflation.
Bullish on growth:
Due to various spending measures in the FY-18 budget (Govt capex), rapid ReMo
and end of any spillover effect of DeMo from Q4FY17 & revival in consumer
discretionary spending and implementation of GST and private investments.
Careful/owlish about banking liquidity
and NPA: RBI will evolve SDF and various effective resolution
methods to deal with NPA on a case to case basis; thus no talks of a Govt
sponsored/PPP “Super ARC/Bad Bank”.
Now,
RBI event is over, market may focus on implementation of GST & Q4FY17
earnings and on various global factors. One of the serious headwinds may be Fed’s
plan to taper or deleverage its balance sheet by not reinvesting the proceeds
from the QE bonds. Although, the exact methodology is not clear, how Fed will
do it, at a glance such unwinding may be bad for USTSY and good for its yields.
Thus in that scenario, US bond yields may soar along with USD, even if Fed only
goes for a limited 2-3 hike in a year and cost of borrowings may surge for the
US economy, which is again not good for the risk assets. So, Fed deleveraging
may be a major concern apart from the actual trajectory of Trumponomics not
only for US market, but also for the global as well as the Indian market.
SGX-NF
BNF
SPX-500
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