Market Wrap: 02/05/2017
(19:00)
NSE-NF (May): 9341 (+7
points; +0.08%)
NSE-BNF (May): 22395
(+28 points; +0.13%)
For 03/05/2017:
Key support for NF: 9305-9245
Key resistance for NF: 9425-9475
Key support for BNF: 22150-21950
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 9305-9245 & 9200-9140 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 22250-22150 & 21950-21750 area in the near term
(under bear case scenario).
Nifty
Fut (May) today closed around 9341, almost flat, but off the low, after making
a day high of 9370 and low of 9284. Indian market today also opened almost flat
following tepid global cues, but after trading in green for the 1st
hour, a sudden selling pressure brought down the NF to the day’s low of 9284 in
a matter of 30 minutes and then it recovered the lost ground after EU opens to
close almost flat.
Although,
exact reason for the sudden fall (long unwinding/fresh shorts from the record
high level of Nifty) is not clear, it’s coincided with the release of Markit
Mfg PMI for April today, which flashed as 52.5 at the same level of March’17.
Although PMI was well off the boom/bust line of 50 recorded in post DeMo Month
of Dec’16, it is also well off the recent high of 54.4 recorded in pre-DeMo
month of Oct’16. As par Markit, there was strong growth in new orders &
demand in April, but also accompanied by slower output, stocks repurchase and
employment. Thus, today’s PMI report may be termed as market neutral and not
upbeat.
There
was also some report that NITI Aayog’s Panagariya, a close advisor of the PMO
is against the concept of a “Bad Bank” (Govt sponsored Super ARC in PPP mode)
for an effective speedy resolution of India’s NPA mess. As there were already
such several ARC and also a SBI/Govt sponsored ARC is there, so creation of
such ARC may not be a solution and it will only waste time by transferring the
stressed asset from some PSBS to another Govt sponsored ARC; actual resolution
may not happen in that way. There was a great hope in the market for the last
few weeks for such super ARC (Bad Bank), an effective NPA policy thereof and
subsequent instant resolution of India’s NPA issues after FM has indicated such
bold steps last month. Thus, as hopes of such Bad Bank is now almost nil, PSBS
& also some other private banks nosedived a little from their day highs.
As
par some reports, IBA may be now scouting for external consultants for
resolution of the NPA mess as the problem is a structural one except some stray
cases; there are questions of project viability, India’s legacy issues of high
real interest rates beside some policy paralysis of past and also some judicial
over extremism (like 2G, mining and more recently the BS-III issues). Somehow
rather, it seems that policymakers, judiciary and investor are quite divergent
& confused at times and ultimately, it was investor’s money/bank’s fund
which is at stake, although Judiciary may be quite right at its decision.
Govt
may be also thinking to privatize some of the fragile PSBS by M&A with some
private banks to get rid off the NPA issues. But, this proposal may also face
serious political hurdles and there may also be lack of sufficient private
interests for such privatization.
Soon
after market hours today rating agency Fitch again disappointed the Indian Govt
in its effort to upgrade the country’s sovereign rating. Fitch today affirmed
India’s rating at the previous grade (BBB- with stable outlook), just one notch
above junk due to weak public finances, high Govt debt/GDP ratio, huge banking NPA
& lack of adequate recapitalization for the PSBS, low GDP per capita despite
higher GDP (in new series) and incremental structural reforms.
Fitch
pointed out that:
1. Strong
medium term growth outlook towards 7.7% by FY: 17-18 from 7.1% in FY-16. Average
GDP growth for the last five years stands around 6.9% in new GDP series, which
is significantly higher than the BBB median range of 3.2%, even if one
discounted the transition from old series to new GDP series from Feb’15
onwards.
2. India’s
GDP growth may be supported by higher real disposable income coupled with
implementation of 7-CPC and average normal monsoon this year.
3. Due
to incremental structural reforms for the last three years, India is getting huge
FDI and is becoming a favourite destination of foreign investors.
4. Now
GST and insolvency & bankruptcy code has been passed in the Parliament, its
implementation is more vital going ahead to improve the overall still weak
business environment (economic activity).
5. RBI’s
focus on managing inflation is encouraging. Traditionally, incrementally higher
inflation is a big issue for Indian economy and RBI is trying to bring it
around 4-5% from previous decades of average 8%. But, oil & food prices may
also pose some of the risks for higher inflation for the Indian economy in the
days ahead.
6. Weak
public finances continue to spoil India’s rating upgrade. India’s Govt debt/GDP
ratio is around 70% against BBB average of around 41%. Also fiscal balance is
wide around -6.6% against BBB median of -2.7% for FY-17E; however, Govt is now
more focused on bringing down debt. As par recent FRBM recommendation, Govt may
gradually bring down the Govt debt/GDP ratio to 60% in the coming years
irrespective of infra spending push.
7. India’s
problem of huge NPL is another reason against any rating upgrade. Banking NPL
is now estimated to be around 9.7% of total advances by FY-17 from 4.6% in
FY-15. As a result, fragile PSBS are finding it difficult to raise capital from
non-Govt sources. Govt’s capital infusion plan for the PSBS under Indradhanush
may be too little & too late, being only Rs.700 bln against actual
requirement of Rs.6 tln, which is equivalent to almost 3% of India’s estimated
GDP of Rs.200 tln by FY-19.
8. Although,
India is not immune to external shock, but it may be less vulnerable than many
of its peers due to strong external finances. Due to narrower CAD &
incremental FDI, India’s current account balance is estimated to be -0.9% in
FY-17 against BBB median of -1.5%. Also, FX reserve of India is now around 8.4
months of current external payments against BBB average of 6.6 months.
9. India,
being a domestically driven economy with lower export dependence on the
volatile commodity, is relatively stable against any external trade shocks.
10. One of the main reasons for India’s poor
rating is lower per capita GDP at around $1714 against BBB median of $9701.
Also, India ranks poor in the ease of doing business with a low World Bank
governance indicator of 46% against BBB median of 58%.
For
the last few months, Govt/policy makers are trying their best to convince
various rating agencies to upgrade India’s rating due to higher GDP growth,
incremental reforms (GST, insolvency code etc) and political stability. Market
may be also expecting an immediate rating upgrade for India after huge win by
BJP in the UP election for the factor of political stability and greater
emphasis on big bang reforms.
But,
it seems that rating agencies are not so convinced and they want to see the
actual implementation of various reforms & its ultimate result on their own
parameters before going for a rating upgrade. This may be a significant disappointment
for both the market & the Govt. Apart from the above reasons, India’s
problem of twin balance sheet & tepid private investments may be also
responsible for the rating agencies to adopt a cautious stance despite some
green shoots in the economy.
SGX-NF
BNF
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