Technical & Macro Analysis Of Indian & Global Market----: Nifty Closed Almost Unchanged For The Day Ahead Of FOMC & Ongoing Squabbling About India’s “Bad Bank”

Market Wrap: 03/05/2017 (19:00)

NSE-NF (May): 9337 (-3 points; -0.03%)

NSE-BNF (May): 22341 (-53 points; -0.24%)

For 04/05/2017:

Key support for NF: 9295-9235

Key resistance for NF: 9425-9475

Key support for BNF: 22200-22000

Key resistance for BNF: 22525-22675

Time & Price action suggests that, Nifty Fut (May) has to sustain over 9425 area for further rally towards 9475-9510 & 9550-9600 in the short term (under bullish case scenario).

On flip side, sustaining below 9405-9385 area, NF may fall towards 9320/9295-9235 & 9175-9115 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 22525 area for further rally towards 22675-22800 & 23000-23200 area in the near term (under bullish case scenario).

On the flip side, sustaining below 22475 area, BNF may fall towards 22275-22200 & 22100-21950 area in the near term (under bear case scenario).

Nifty Fut (May) today closed around 9337, almost unchanged after making an opening minutes low of 9315 and day high of 9366 (actual day low 9330). Most of the day, NF was extremely range bound supported by IT, Cement and PSBS to some extent apart from Infratel, Powergrid; but dragged by Pharma, Private Banks, Telecoms & Metals.

Indian market today also opened almost flat following muted global cues after tepid closing of overnight US market dragged by energy stocks (lower oil) and auto scrips (below expected vehicle sales for April’17) coupled with pressure on Tech shares (tepid report card from Apple).

EU market was also under pressure amid concern for a hard Brexit after EU authorities reportedly asked for a Brexit fine for around $100 bln, which UK instantly rejected. EU authorities are also seeking equal rights of EU citizens in UK & vice versa, which may be the most contentious point for the overall Brexit negotiation. Although, it’s too early, contrary to earlier perception of a soft Brexit (favourable for the market), market is now concerned about a hard Brexit or no negotiation at all !!

All the eyes will be now on FOMC statement later in the day today for any clues about June rate hike and tapering of Fed’s balance sheet. Although, market is pinning great hope on the Fed for a hawkish script today and a definitive indication about the June rate hike, recent set of subdued US economic data may also keep Fed on the side line at least till Sep’17. Also, market is extremely optimistic about some tax reform plan by Trump, which may be also delayed until H2CY17 and in that scenario; Fed may ultimately take some real action (rate hike/balance sheet tapering) by Dec’17.

As today, there will be no economic projection or a presser (Q&A) by Fed, market may learn more about Fed’s stance on Friday, when Yellen, Fischer and other FOMC members are scheduled to participate in some meeting/speeches. By, then we have also NFP job data for April’17 to have an idea about strength of US job market after terrible figure last month. Also, market may be eager to know more about US TSY Sec’s idea of issuance of long term bonds from Yellen.

Amid all these ongoing global events, Indian market today was also extremely range bound; but there were some actions on the PSBS amid squabbling about the “Bad Bank” (super ARC) issue. Around noon, there was some unconfirmed market buzz that Govt (PMO) has given its in principle nod for a Bad Bank comprising of 51% Govt equity and 49% private participation. There were also reports that CEA has convinced the PMO for such Govt sponsored super ARC despite opposite view by NITU Ayaog as reported yesterday. But soon after today’s report about Bad Bank, Govt sources clarified that there is no such probability in the near future as it may constrain Govt’s fiscal position quite seriously. Govt/RBI is working actively on the NPA policy, which may be unveiled after 2-3 weeks. As a result, PSBS, which were jumped initially quite smartly, retreated to some extent. As par some latest report, Govt may soon pass an ordinance to amend certain provisions of the banking regulation act to put pressure on the large defaulters (NPA/NPL) by RBI/Banks to solve the NPA crisis !!

As par some estimates, India’s NPL may be now around Rs.15 tln against official Dec’16 figure of around Rs.6.5 tln and most of these (around 70%) is confined within 30-50 large industrial groups, involving lack of project viability and other structural issues. So, by mere changing of management or taking over the project itself by some ARC may not solve the core issues of cash flow itself and thus a bad bank idea may also be not workable here.

Today, after market hours, ICICI Bank has published its Q4Y17 report card and at a glance, although the overall result may be in line with estimates, NPA & provision was again surged for a common problem; i.e JPA’s cement unit M&A issue with Ultratech and subsequent bridge loan provided to the stressed company. For ICICI, its worth Rs.5378 cr and as a result of recent mini AQR by RBI, the bank has to provide additional 25% more provision on it. Various private banks, such as IIB, Yes, Axis & also ICICI has provided huge bridge loan to the stressed JPA group to complete the proposed M&A transaction, which is pending till now. Thus, RBI has asked to provide additional provisions for the loan to JPA and until the propose M&A gets completed, this issue may be going on; but banks are hopeful for the completion of the same by Q1FY18.

Deteriorating asset quality of ICICI bank may keep the stock price under pressure tomorrow despite announcement of a bonus issue (1:10). Absolute GNPA surged by almost 12.8% sequentially to Rs.42552 cr (net of write offs) with fresh addition of Rs.5911 cr apart from the above JPA amount of Rs.5378 cr. In addition, the bank wrote off Rs.5386 cr worth of NPA in Q4FY17 alone. Thus actual GNPA may be treated as Rs.47938 cr as bank will try to recover this write off amount too in the future either by itself or by selling through a ARC with huge hair cut (usually 50%). Market may be more interested about asset quality rather than PAT/EBITDA/NII for the ICICI bank as of now.

Although, ICICI Bank (LTP: 273) has corrected to some extent from its recent high in anticipation of a tepid Q4 report card, technically, sustaining below 270-260, it may fall more towards 245-235 & 220-210 area in the short to mid-term. For any strength, the stock needs to sustain over 282-292 area for 300-320 & 350 zone in the bull case scenario.