Wednesday, 14 February 2018

Nifty jumped on positive global cues & hopes of a softer inflation

Market Wrap: 12/02/2018 (17:00)

NSE-NF (Feb):10533 (+63; +0.60%)

(NS: 10540; Q2FY18 EPS: 391; Q2FY18 PE: 26.96; Abv 2-SD of 25; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Jan):25715 (+202; +0.79%)

(BNS: 25702; Q2FY18 EPS: 867; Q2FY18 PE: 29.65; Abv 3-SD of 30; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 14/02/2018: Feb-Fut (Key Technical Levels)

Updated: 10:25 (SGX-NF: 10540); +7 points
(Flat on mixed global cues)

Expected BNF opening: 25750 (almost flat)

Support for NF: 10520/10480-10430/10370

Resistance for NF: 10575/10615-10650/10700

Support for BNF: 25490/25400-25250/25000

Resistance for BNF: 25875/25950-26050/26250

Trading Idea (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10615 area for further rally towards 10650-10700 & 10760-10800 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10595-10575 area, NF may fall towards 10520-10480 & 10430-10370 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25875 area for further rally towards 25950-26050 & 26250-26550 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25825-25775 area, BNF may fall towards 25490/25400-25250 & 25000-24800 area in the near term (under bear case scenario).

Indian market (Nifty Fut-Feb/India-50) today (12th Feb) closed around 10533, on positive global cues following a sharp recovery in US market in the Friday closing session after plunging on higher bond yields & VIX; i.e. concern of higher borrowing costs. Indian market scaled a session high & low of 10560-10482 amid supportive Asian cues and hopes of a softer inflation (CPI) to be released later in the day.

US stocks, on Friday, plunged to a 4-month low but recovered its losses and settled sharply higher. Stocks found support last Friday on Congressional approval last Thursday night of a 2-year budget agreement and a continuing resolution (CR) to keep the US government open through 23rd March.

Asian cues were positive:

Most of the Asian markets were in green tracking Wall Street’s late Friday rebound on bargain hunting & short covering as US stock market reached a correction territory (10% down from recent high & touched the 200-DMA). Some rebound in oil in the Asian session today after plunge on Friday amid concern of higher US production may be also helping despite lower USD; Japan was closed today. 

Techs have helped China & Hong-Kong market amid long Lunar New Year holiday induced profit booking and continuous inactiveness from PBOC in its OMO. Chinese stocks closed higher, led by strength in financial stocks, on signs of strong credit growth after China Jan new Yuan loans rose +2.9 trillion Yuan, the most since 1992.
China market was also boosted by bargain hunting after recent plunge and reports that government has called on companies & mutual funds (DII or so-called China plunge protection team) to “boost the stock market”.

The weaker dollar has boosted commodity prices (oil & metals), which in turn has also boosted energies & mining/metal stocks. Asian stocks settled mostly in green: Hong Kong -0.16%, China +0.78%, Taiwan +0.48%, Australia -0.30%, Singapore +0.23%, South Korea +1.08%. AU stocks were under pressure on energies (Friday plunge in oil) and banks & financials (regulatory probe).

Today Nifty was supported mostly by RIL, HDC Bank, HDFC, L&T, Maruti, Tata Steel (upbeat report card for the domestic operations), Yes Bank, Indusind Bank, Power Grid & Axis Bank by almost 76 points altogether.

Nifty was dragged mostly by SBI (terrible Q3 report card on surge in NPA & bond yields), HCL Tech, ITC, Infy, BPCL, HPCL, Bharti Infratel, M&M, ICICI Bank & Tech-M by almost 24 points cumulatively.

Overall, today Indian market was helped by banks & financials (mixed private & public banks), automakers, FMCG, media, pharma, reality, consumption, energies, metals, while dragged by techs (weak USD) & OMC.

India’s CPI came softer, but core CPI is still sticky:

After market hours, Indian CPI for Jan came softer at 5.07% vs est 5.14%; prior: 5.21% (YOY); but core inflation is unchanged at 5.1%, which is quite sticky and far above RBI’s medium-term target of 4% and thus it may not change any stance from RBI, which is on neutral (hawkish hold) mode. The slight fall in inflation may be a seasonal (winter) function of lower food & pulses prices. IIP for Dec came good at 7.1% vs est 6.2%; prior: 8.8%.

Last week, the RBI held its rate unchanged and warned that it would closely monitor inflation but also said economic growth needed to be “carefully nurtured”. Thus, RBI’s statement was less hawkish than many expected and prompted some economists to change their predictions of a rate increase in the next few months. Indian 10YGSEC bond yield fell from recent high of 7.67% to 7.50% now as RBI sounds less hawkish than expected by the market coupled with some drops in headline CPI.

Indian Banks may be under pressure after new rules of RBI loan restructuring mechanism:

RBI also issued a new mechanism for NPA resolution framework after the market hours on late Monday. This will virtually abolish about twelve existing bad loan restructuring schemes under different CDR  and bring all the large defaults to NCLT/IBC mechanism in a bid to accelerate the actual resolution as the NCLT/IBC (insolvency) process is much more effective than the older CDR/SDR plans.

RBI ushers in sweeping changes to bad debt framework; new resolution framework replaces all existing schemes; CDR, SDR, S4A, joint lenders forum (JLF) all withdrawn w.e.f today. Finally, a move came from the RBI/Government that ends the multiplicity of schemes to tackle NPA's. This would also end the confusion amongst bankers and virtually sets in 6-month default referral to NCLT in place.

But, there will be huge pressure on banks as no more NPA under-the-carpet brushing and banks may be under pressure tomorrow, once Indian market opens after the holiday today. The RBI move came after a sudden surge in NPA/NPL by SBI day before yesterday after new Chairman took over.

As par RBI: “The new set of rules are aimed at creating a harmonized and simplified generic framework for the resolution of stressed assets in view of new bankruptcy regulations; The new system will force lenders to identify and tackle any stressed-asset accounts more rapidly”.

RBI-“Under the new rules, banks will have to file for insolvency proceedings against loan defaulters with 20 billion rupees ($311 million) or more if a resolution plan is not implemented within 180 days of the initial occurrence of default”.
RBI also warned that “any failure on the part of banks to meet the prescribed timelines, or any actions they take to conceal the actual status of accounts or evergreen stressed accounts, will expose banks to potential monetary penalties and other actions”
RBI also tightened the resolution process through NCLT and pointed out that any such process involving restructuring or change in ownership for large accounts with loans of Rs.1 billion or more will need independent credit evaluation by credit rating agencies that are authorized by the RBI and loans of Rs.5 billion or more will need two such independent evaluators.

Some of the existing loan restructuring rules (CDR/SDR etc) has been criticized for helping to evergreen the NPA. The debt for equity swap programme, one of RBI’s most popular plans, has had little success, with creditor banks struggling to find new buyers for the companies they tried taking over by exchanging part of the debt for equity.

After all, at the end of the day, there are little eligible & qualified buyers for the stressed assets even under NCLT mechanism because of various structural reasons and that will be the biggest headwind in the coming days.





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