Nifty May Be In Pressure Despite FDI Buzz For Banks As Valuations Are Quite Stretched

Market Mantra: 18/01/2018 (09:00)

SGX-NF: 10860 (+61)

For the Day: updated: 15:00

For 18/01/2018: Jan-Fut

Key support for NF: 10805/10755-10700/10655

Key resistance for NF: 10865/10905-10955/11095

Key support for BNF: 26250/26150-26000/25750

Key resistance for BNF: 26325/26450-26615/26820

Market Set To Surge On Govt’s FDI Push Proposal To The Banks:

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10905 area for further rally towards 10955-11050 & 11095-11315 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10885-10865 area, NF may fall towards 10805-10755 & 10700-10655 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 26450 area for further rally towards 26550-26615 & 26820-27120 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 26400 area, BNF may fall towards 26250-26150 & 26000-25750 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Jan/India-50) is now trading around 10800, almost flat, but well off the opening session high of 10873 made on reports of FDA boost for the banks; so far it made a session low of 10774 amid visible selling pressure in the broader market; CNX Nifty Midcap index tumbled by over 2.50% as overall valuations may be very stretched and Q3 earnings trend is not great either to justify such lofty valuation, everything being equal.

As of now, Indian stock market capitalization may be around Rs.158 tln, which is almost 104% of India’s nominal GDP of around Rs.153 tln and at 10888, today’s new life time high of Nifty spot, Q2 TTM PE is around 27.85, which is a historical bubble zone despite hopes for earning recovery & current global euphoria in stock market.

Another reason behind muted market reaction today after gap-up opening may be that Indian 10YGSEC bond yields again jumped towards 7.45% after yesterday’s plunge to 7.35% on news of reduced additional borrowing by the Govt and an extra dividend by the RBI. 

As par Moody’s: “reduction in borrowing is relatively small compared to size of eco; expect rev accretion over time from more tax compliance by next fiscal, in India; Expect FY18 GDP growth for India at 7.5%; reduction in borrowing will not really impact fisc deficit target est, for India; expect India's Govt to maintain stance of gradual fiscal consolidation; reduction in Indian borrowing not too relevant to our sovereign rating on India”.

RBI Dy Gov was also cautious about NPA: “Risk pricing by banks would have avoided NPA”; i.e. banks were not judicious enough in extending huge loans to various stressed corporate groups without analyzing properly their B/S & actual state of affairs.

Another factor may be that, even if 49% FDI is approved for PSBS, there may not be enough FDI interest to bail out those fragile banks as in India; recovery of loan/NPA rate is very low around 25% against Japan’s 93%; also there will be huge political protest for such FDI reform in PSBS, which will delay the actual recaps process. 

At 49% FDI, management control will be on the Govt and as such no foreign investor may show interest in fragile PSBS and no Govt will sell SBI to any foreign entity either.

Overall global cues were positive today.

SGX-NF

SPX-500