Friday, 26 January 2018

Nifty Tumbled On RBI Denial of Additional Dividend & Disappointment Over PSBS Recaps, But Recovered On Budget Optimism

Market Wrap: 25/01/2018 (17:00)

NSE-NF (Feb):11060 (-0.45; -0.41%) 

(NS: 11070; TTM Q2FY18 EPS: 391 TTM Q2FY18 PE: 28.31; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):27331 (-158; -0.58%) 

(BNS: 27446; TTM Q2FY18 EPS: 867; TTM Q2FY18 PE: 31.66; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 29/01/2018: Feb-Fut

Key support for NF: 11020/10950-10900/10840

Key resistance for NF: 11135/11175-11215/11260

Key support for BNF: 27300/27050-26800/26600

Key resistance for BNF: 27650/27825-28075/28405

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 11135 area for further rally towards 11175-11215 & 11260-11315 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 11115 area, NF may fall towards 11070/11020-10950/10900 & 10840-10790 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 27650 area for further rally towards 27750-27825 & 28075-28405 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 27600-27500 area, BNF may fall towards 27300-27050 & 26800-26600 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Feb/India-50) today (25th Jan) closed around 11060, slumped by almost 45 points (-0.41%) after making a mid-session low of 11025 and an opening session high of 11126. Nifty spot edged down by 0.15% on renewed concern of fiscal discipline after RBI reportedly declined additional dividend; Government source also confirmed that “due to closure of Govt books of accounts for FY-18, there is no provision for additional income/dividend from RBI”. 

Also, below expected PSBS recaps (smaller amount for well managed big PSBS like SBI and bigger amount for fragile small PSBS like IDBI Bank) along with various tough caveats/conditions for structural reforms have dampened the sentiment. But market recovered later on budget optimism, although selling was quite visible in mid/small caps on MF regulatory restructuring. 

Market was also in pressure on upward trajectory of Brent crude oil, hovering above the $70 mark and along with it, reports of no additional dividend by the Govt, Indian 10YGSEC bond yields jumped by 0.43% and closed around 7.31% on concern of fiscal discipline; consequently Public sector banks (PSBS) came under renewed pressure; overall global cues were also negative on lower USD & concern of trade war.

But, Nifty closed the Jan series with blockbuster gain of 5.65%, at multi-month high on global euphoria of similar trend in equities coupled with domestic optimism about earnings recovery, a market friendly budget based on reforms & not on political populism, PSBS recaps & a quick NPA resolution and hopes of fiscal consolidation.

Market may be disappointed over 1st tranche of PSBS recaps:

The latest PSBS recaps injection through a combination of non-SLR bonds & cash were just one step in the long process to clean up India's bad debt, and that the lenders' final capital position will also depend on how they undertake the central bank's directive to take nearly 40 large corporate loan defaulters to bankruptcy proceedings, which will likely involve haircuts on their loans; the current recaps amount may be too little & too late, although rating agencies has termed it credit positive for the PSBS.

Both Moody’s and S&P termed capital for Indian banks is a step towards stronger balance sheets; India's capital infusion into PSU banks is credit positive.

As par some trial balloon, for FY-19 budget, infra spending may rise nearly 25% to about Rs. 5 tln in 2018-19; power, roads & highways, renewable energy may get spending fillip; expect hike on electricity-for-all scheme ‘Saubhagya Yojna’; expect tax rationalization for infrastructure investment trusts and personal income tax for middle class group; corporate tax may not be tinkered too much this year.

After market hours, Government announced an upbeat revenue collection figure of GST for Dec’17 at Rs.0.87 tln, which may be a positive surprise, considering tax rate revisions.

Today Nifty was helped mostly by ICICI Bank, HDFC Bank, VEDL, L&T, Axis Bank, IBULLS HSG, Kotak Bank, IOC, Ultratech Cement & Indusind Bank by around 30 points cumulatively (top ten contributors).

Nifty was mostly dragged by SBI, TCS, UPL, Adani Ports, Maruti, Infy, Bajaj Fin, Auro Pharma, Hero Motors & Tata Motors by almost 38 points altogether (top ten draggers).

Overall, Indian market today was supported by Private Banks (disappointed recaps for large PSBS will help private banks to capture more corporate lending share), financials, metals (higher metal prices on slump in USD), while dragged by PSBS, auto makers, FMCG, techs, media, pharma, reality, infra, energies & consumption stocks.

Overall Q4 report card till day may be also mixed and not a great surprise to justify the lofty valuation.




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