Sunday, 7 January 2018

Nifty Extend Gains & Closed At Record High On RBI’s “Green Signal” For Extra Dividend To Govt

Market Wrap: 05/01/2018 (17:00)

NSE-NF (Jan):10578 (+52; +0.49%) 

(TTM PE: 27.00; Abv 2-SD of 25; TTM Q1FY18 EPS: 391; NS: 10559; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):25661 (+165; +0.65%) 

(TTM PE: 29.53; Near 3-SD of 30; TTM Q1FY18 EPS: 867; BNS: 25602; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)
For 08/01/2018: Jan-Fut

Key support for NF: 10605/10575-10525/10485

Key resistance for NF: 10675/10725-10795/10815

Key support for BNF: 25500/25200-25000/24800

Key resistance for BNF: 25700/25900-26100/26250

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10675 area for further rally towards 10725-10755/10795 & 10815-10860 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10650 area, NF may fall towards 10605/10575-10525 & 10485-10425 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25900 area for further rally towards 26100-26250 & 26325-26615 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25850-25700 area, BNF may fall towards 25500-25300/25200 & 25000-24800 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Jan/India-50) today (5th Jan) closed around 10578, jumped by 52 points (+0.49%) and closed at another record high mirroring similar global trend after late hour reports that RBI has given “green signal” for extra dividend to Govt (in the long disputed issue of DeMo led windfall profit to the central bank- narrative of Demonetized currency notes, which have not returned to the RBI, thereby reducing B/S liabilities of RBI). Nifty (spot) gained around 0.2% for the 1st week of 2018 and scaled a record high of 10566.

As par reports, Govt had sought Rs.0.13 tln as “additional dividend” (DeMo profit) from RBI; the central bank may pass it to the Govt as additional “trading income” on account of its FX & bond portfolio and close this issue; RBI does not recognize any DeMo profit, but a B/S treatment of assets & liabilities.

It seems that Govt is in dire need of additional funds for the sake of fiscal discipline amid subdued revenue collection and higher capex, PSBS recaps & surging oil. So far RBI has transferred around Rs.0.31 tln surplus profit to the Govt for FY-17 vs Rs.0.66 tln for FY-16. 

Shortfall of RBI dividend is one of the major headwinds for Govt’s fiscal slippages this year; RBI profit plunged due to additional expense for DeMo led currency notes management. Govt has already communicated to borrow additional Rs.0.50 tln for FY-18 and thus “additional dividend” of Rs.0.13 tln by RBI may help the Govt to prune fiscal deficit.

Indian market today opened around 10550, edged up following global Goldilocks & extended New Year rally on global growthoptimism; but overall sentiment may be cautious on higher oil as Brent is hovering around $68, which is a serious headwind for Indian macro; Indian market made a opening session low of around 10536 & late day high of 10582 after a days of range bound trade.

Indian bond yield fell to 7.28% from earlier 7.34% after news of RBI additional dividend; but still significantly higher on concern for fiscal slippages; as par reports, PSBS recaps bonds by the Govt may offer interest as high as 7.75% to attract investors to participate in PSBS recaps. As PSBS recaps news is now almost discounted, market will now focus on fiscal math and corporate lending recovery & any subsequent boost to private capex, which is still muted for various reasons. 

Indian market sentiment today may have also boosted by a Fitch report that India may be the fastest growing economy over next 5 years (2017-22) at an annual average rate of 6.7% against China’s 5.5%. 

For 2017 Fitch has predicted India’s GDP growth as 6.4% citing GST/DeMo spillover effect and then gradual pick up to 7.3-7.6% (2018-19) on proper implementation of these structural reforms aided further by favourable demography, PSBS reaps & subsequent expected revival of corporate lending.

As par Fitch, the key risks to its forecast may be poor access of proper education to certain section of the economy and stagnant private capex, which could derail productivity & overall investment growth for the Indian economy.

Today Nifty was supported mostly by Yes Bank (UID enabled PIN less ATM/Debit card) HDFC, Bajaj Fin, Adani Ports, Indusind Bank, Bharti Airtel, TCS, Eicher Motors, ITC & RIL by almost 52 points altogether.

Nifty was dragged mostly by IOC, Bharti Airtel, ICICI Bank, SBI, Infy, HPCL, Hindalco, UPL, ONGC & BPCL by around 18 points cumulatively.

Overall, today Indian market was helped by selected private banks & financials (fall of bond yields after RBI indication of additional dividend to the Govt & Fitch optimism about Indian GDP), automakers, FMCG, selected techs, media, metals (global & domestic growth optimism), pharma, reality, infra & consumer staples, while dragged by PSBS (concern of EQ dilution after recaps & various hurdles for NPA resolution through NCLT), OMC (higher crude oil and not being able to pass the same).

On the broader market, liquor stocks soared on solid earnings from GM Breweries, IFCI jumped on deleveraging news, RCOM surged as China Development Bank withdraws its IBC/NCLT petition, Bharat Forge rose on upbeat North America truck sales, IOB soared on bank’s plan to adjust its accumulated loses of Rs.0.08 tln with its share premium accounts (recaps money), Idea roared on fund raising plan & analyst optimism.





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