Nifty Snapped 3 Day Losing Streak Helped By Banks After Govt Announced The Formation Of A NPA Panel To Deal With Stressed Assets

Market Wrap: 11/04/2017 (19:00)

NSE-NF (April): 9267 (+58 points; +0.63%)

NSE-BNF (April): 21755 (+196 points; +0.91%)

IN 10Y G-SEC: 6.808 (-0.83%)

USDINR (Apr): 64.65 (-0.06%)

For 11/04/2017:

Key support for NF: 9235-9170

Key resistance for NF: 9275-9315

Key support for BNF: 21775-21650

Key resistance for BNF: 21875-21975

Time & Price action suggests that, Nifty Fut (Apr) has to sustain over 9315 area for further rally towards 9375-9425 & 9465-9505 in the short term (under bullish case scenario).

On the other side, sustaining below 9295/9275 area, NF may fall towards 9235-9170 & 9115-9040 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 21825 area for further rally towards 21875-21975 & 22050-22150 area in the near term (under bullish case scenario).

On the other side, sustaining below 21775 area, BNF may fall towards 21650-21550 & 21450-21340 area in the near term (under bear case scenario).

Nifty Fut (Apr) today closed around 9267, rallied by almost 0.91% after three days of consolidation despite tepid global cues helped by banks & IT. Indian market today opened slightly gap down on renewed geopolitical concern involving North Korea (NK) & also Syria. As par unconfirmed reports, China may be mobilizing huge troops on NK border on apprehension about any US aggression. Also, it appears that Trump is pressurizing China to solve the NK issue for a trade deal and if China does not take any action, then USA will go alone; i.e. may also attack NK.

There was also some renewed political tension in France as an extreme left wing candidate emerged with the centrist (Macron) and anti EUR candidate (Li-Pen); although market favourable candidate Macron is leading in opinion polls, investors may still be on the edge considering recent Trumpism & Brexit results. Thus, all these ongoing geopolitical tensions has made the “risk trade” off and smart money is flowing to the safety of USTSY bonds and some safe heaven currencies, such as JPY; USDJPY is on the verge of breaking the vital 110-109 level and if its broken convincingly, then one can expect more “risk off” global trade.

But, Indian market today shrugged off these global concerns ahead of earning seasons, starting officially with Infy day after tomorrow. After last few days selling on the back of tepid earning concern and subdued forecast about global IT spending, Infy saw some short covering today and closed almost 1.50% higher at around 967. Looking forward, 930-900 area may be a good technical support for the stock and sustaining above it, Infy may again rally for 1005-1045 zone in the coming days. On the flip side, consecutive closing below 900 area for any reason (below expected result & guidance), Infy may further fall towards 825-790 area in the short to medium term.

After making opening minutes low of around 9188 today in NF, market today recovered a bit on the back of short covering/value buying after last few days consolidation (fall). But, it again came under some pressure when SC gave an adverse verdict against power companies (Tata/Adani power), which may affect their future cash flows. As some of the power companies like Adani power has significant debt with the banks, market was again come under some pressure.

But at the fag end of the market, Govt/FM announced formation for a NPA panel to formulate an effective policy for stressed assets resolution like quantum of haircuts, OTS , CDR mechanism etc. This has rejuvenated the banks & the overall market sentiment towards the closing session and NF made a high of around 9270. Market may be also very optimistic about Q4FY17 earnings from the PSBS and also very hopeful that despite all the odds, Govt will continue to support the recapitalization of the banks. 

In fact, FM today also reiterated that recapitalization commitments from the Govt; but also ruled out extensive bail out of the PSBS with tax payer’s money and advised them to use the capital market route more predominantly. Although, the Govt is setting up a NPA panel for policy formulations/modifications for the stressed assets, there are already such similar policies in the banking system formulated by the RBI over many years; but perhaps, Govt is revisiting the same considering some recent controversies about haircut & OTS amount, so that PSBS authority may take some decisions to resolve a NPA without any fear/black lash in future from any Govt investigation agency.

Midcaps also supported the market today outperforming it as usually; but overall valuations of the midcaps may be now very expensive and as par some analysts, it may be now in a bubble zone. Some of the small caps banks, such as KTK & DCB bank also surged today by around 10% on M&A hopes as consolidation in Indian banking space may now be imminent.

SGX-NF

BNF