Thursday, 18 January 2018

Nifty Soared After Indian Bond Yield Plunged On Govt’s Plan To Cut Down Additional Borrowing Coupled With Gift Of Extra Dividend From RBI

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

NSE-NF (Jan):10799 (+89; +0.83%) 

(NS: 10789; TTM Q2FY18 EPS: 391 TTM Q2FY18 PE: 27.59; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):26306 (+325; +1.25%) 

(BNS: 26289; TTM Q2FY18 EPS: 867; TTM Q2FY18 PE: 30.32; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

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) today (17th Jan) closed around 10799, soared by almost 89 points (+0.83%) and well off the panic low of 10665 made in the opening minutes after Govt vows to cut down additional borrowing for the sake of fiscal prudence; it made a late day high of 10805. This follows after surge in bond yields yesterday on concern of fiscal slippages amid surging trade deficit, oil & some cautionary comments by RBI Dy Gov.

Today Nifty jumped from the panic low after Govt said that it will borrow only RS.0.20 tln extra in FY-18 vs earlier estimate of Rs.0.50 tln. Meanwhile, RBI is also extending a helping hand to the Govt in this “difficult time” by transferring an additional dividend of Rs.0.14 tln. After the Govt announcement, Indian 10YGSEC yields tumbled from earlier high of 7.56% to 7.35% and stock market/banks rallied.

Apart from Indian macros, all eyes may be now on Q3 earnings, which are so far mixed. Fall in bond yields has boosted the banks & financials, especially PSBS and subsequently Sensex, Nifty & Bank Nifty scaled record high in line with ongoing global euphoria; Nifty Spot made another life time high of 10803; further GST recalibration & simplification, hopes for less NPA hair cuts by the banks and budget optimism may have also helped the market sentiment today.

Govt Has Proposed Big FDI Push For The Banks:

After market hours, Indian Govt has floated a draft proposal (subject to regulatory/RBI approval) to increase FDI limit in private banks from present 74% to 100% and in PSBS from 20% to 49%. PSBS may be a big beneficiary out of it because some of them need adequate recaps and if the proposal is passed in the present format by RBI, then it may bring cheers to some of the PSBS and also private banks; but market may want to see more fine prints of the proposal after the initial euphoria.

Also, considering present shabby B/S of some of the PSBS & huge NPA/NPL, it’s doubtful how much FDI will eventually flow into weak PSBS without full management control. 

But Govt may be relieved if adequate FDI flow into the PSBS, because in that scenario, it has less obligation for recaps funds and at the same time could maintain its fiscal discipline and utilize the capex elsewhere in rural spending & infrastructure. But such FDI push may be also a long drawn process for the PSBS and it will also invite huge political protest & objections from strong banking unions.

After market hours, Govt also published an upbeat direct tax collection figure: Direct Tax Mop-Up At Rs 6.89 tln As On Jan 15, Up 18.7% YoY. 

Banking stocks/PSBS were also in the limelight after reports of less NPA haircut requirement in some of the big corporate NPA cases under NCLT (30% vs 60% earlier) as they may get better bids from prospective buyers. Market may have also an early indication (leak) of the Govt’s mega FDI push for the banks as evident in today’s Bank Nifty price action. Overall global & Asian cues were mixed.




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