Market Wrap: 01/03/2018 (17:00)
NSE-NF (March):10442 (-77; -0.74%)
(NS: 10458; Q2FY18 EPS: 407; Q2FY18 PE: 25.70; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)
NSE-BNF (Jan):24870 (-300; -1.19%)
(BNS: 24903; Q3FY18 EPS: 821; Q2FY18 PE: 30.34; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)
For 05/03/2018:
Updated:
SGX-NF: 10350; (-92 points)
(Gap down on negative global/US cues amid concern of trade war and Fed hikes)
Expected BNF opening: 24650
March-Fut (Key Technical Levels)
Support for NF: 10330/10290-10240/10130-10100
Resistance for NF: 10430/10485-10525/10575
Support for BNF: 24800-24500/24350-24000/23850
Resistance for BNF: 25000/25200-25450/25575
Technical View (Positional):
Technically, Nifty Fut-Jan (NF) has to sustain over 10525 areas for a further rally towards 10575-10650 and 10695-10750 zones in the short term (under bullish case scenario).
On the flip side, sustaining below 10485-10430 areas, NF may fall towards 10330-10290 and 10240-10130/10100 zones in the short term (under bear case scenario).
Technically, Bank Nifty-Fut (BNF) has to sustain over 25300 areas for a further rally towards 25450-25575 and 25800-26000 zones in the near term (under bullish case scenario).
On the flip side, sustaining below 25250-25000 areas, BNF may fall towards 24800-24500 and 24350-24000/23850 zones in the near term (under bear case scenario).
The Indian market (Nifty Fut-March/India-50) closed around 10442 on Thursday (1st March), cracked by almost 0.74% on subdued global cues coupled with increasing concern about NPA, Bank “loots” (theft/fraud) and concern of drought this year & PSBS overseas branches consolidation.
The Indian market made an opening session high of around 10530 on the upbeat GDP figure of 7.2% released on Wednesday after market hours, but soon succumbed to the selling pressure as PSBS (public sector banks) begun to bleed again along with metal names (concern of US import duty and muted China Mfg PMI data).
Although the Q3 Indian GDP flashed blockbuster, it may be also a function of favorable base effect and largely supported by a surge in government capex and consumption, whereas private capex & consumption may be still muted.
The Indian market came to intense sell-off in the last hour of trading on Thursday despite an upbeat auto sales numbers for February and made the day low of 10439 ahead of a long weekend holiday on the concern of negative global cues amid Powell shocker and Trump’s narrative of trade protectionism.
The government may consolidate the overseas branches of the PSBS after the PNB fiasco:
There was a report that government is planning to consolidate 35 overseas branches of the PSBS with 69 more under review. The government will also examine around 226 overseas PSBS operations and may shut down all non-viable offshore operations of the PSBS to cut costs and may also consolidate equity stakes in joint ventures having multiple state-run bank partners.
A consolidation; i.e. merger of weak PSBS with the strong ones may be negative for the later although it may have intended to prevent similar PNB “SWIFT” fiasco in future.
Dalal Street may be concerned about the “real street”:
Also, the market may be concerned that due to various regulatory steps being taken by the government in its operation of the “big bank cleanup” and intention to classify every NPA as a “fraud” due to the diversion of funds or otherwise may hamper the normal lending & borrowing operations and the economic activity.
Various stringent rules to extend loans may affect operations of the PSBS and the morale of the bank personnel as Banks may be now forced to flag even border-line cases to the CBI on suspicion of fraud. As the PNB “loot” (theft) and the great Indian NPA saga gets murkier day by day, normal trade finance is being affected as Banks (lenders) have become more cautious.
The Indian private banks were also under pressure due to reports of huge NPA there, now is coming to the limelight after the PNB fiasco. Apart from the “SWIFT” fiasco, which are not linked to the core banking system (CBS) most of the PSBS like PNB and the subsequent loan fraud, market may be also concerned that many PSBS or even their private counterparts are extending loans on the basis of net worth of borrowers or guarantors without adequate collateral securities.
The market may be concerned about the great Indian saga of celebrity defaulters:
The market may be concerned that bigger loan scams in the PSBS may come to the daylight, once there will be management changes and the roles of the auditors including that of RBI may be under the scanner and there is some kind of trust deficit on the whole financial system in India. After the PNB fraud, CBI has unearthed three new big bank frauds as the investigating agency has gone to the top gear.
Indian Bank’s NPA crisis is increasing day by day as they were not dealt properly and it now seems that every management has tried to hide this legacy problem by rolling over the debt/NPA like a Ponzi scheme. There is also a question of corporate governance not only for the PSBS but also for the corporate savvy private banks.
Even big private Banks like ICICI is under government scanner for huge NPAs in Videocon, Essar steel, ABG shipyard etc and the latest bankruptcy by the telecom operator Aircel may cost various Banks for another Rs.0.15 bln.
As par reports Airtel may not bid for Aircel as Bharti Airtel is stressed itself amid disruption from R-Jio. Apart from NPA, huge job losses from the stressed telecom sector may be another serious headwind for the Indian economy. GTL tower with an exposure of around Rs.0.05 bln to Banks may be also on the verge of closing down.
The market is also apprehending another big loan/NPA scam from ABG shipyard, where a leading foreign Bank has already made a formal FIR to the police many months ago. Fortis Healthcare is also under ED scanner for suspected fund diversions by his promoter group, Singh brothers. SEBI may also tighten the loan default disclosure norm to one day by the listed corporates after the PNB fiasco, which was undetected for several years.
Apart from huge corporate stressed assets, the market is also concerned about increasing MSME NPA as most of them are also unsecured. There is political populism behind many MSME lending program being undertaken by the government. RBI may also scrap the current MSME loan cap of Rs.0.05-0.10 bln (5-10 cr) to be eligible under priority lending.
The market may be worried about drought this year:
On Thursday, Indian market sentiment may have also affected due to a report about intense heat wave conditions across most of India (North/Central/West/East) amid no winter rainfall this year due to La-Nina conditions. The market may be concerned about a drought-like situation this year after 2-3 years of near-normal rain, although it may be too early at this point of time. IMD will come out with its 1st official forecast of monsoon this year in the 2nd half of April’18, but it is hopeful for a normal rainfall this year too.
As par IMF: La Nina conditions likely to be moderate till May-end and will likely to start weakening post-May. Prospects of a normal monsoon improve with La-Nina on the way as sea surface temperature over equatorial Pacific suggests moderate La-Nina. Indian Scientists have identified early signals of moderate La-Nina conditions.
On Thursday, Indian 10Y bond yield closed around 7.744%, up by almost 0.27%, eyeing the recent high of 7.78% on the concern of inflation, below normal rain, higher oil, a hawkish Fed, thinking about 3-4 hikes this year and a high probable hawkish hold stance by RBI in April.
A higher bond yield is not good for the overall economy and the corporate earnings on higher borrowing costs. Already, various Indian Banks has hiked their MCLR (base lending rate) recently.
There were also some concerns about Indian fiscal deficit, but the government has assured that the same will be within limits with a hope of revenue buoyancy in Q4FY18 and there will be no cut in expenditure in rest of the FY-18.
The Indian accounting system may be in question:
The Indian government has also assured their accounting system as “100% correct & efficient” and has also a counter check of auditing. There were some questions over the Indian government accounting system, which follows “cash” accounting method, instead of the generalized “accrual” accounting system.
In the “cash” accounting system, the government may not have accounted the impact of food subsidy (FCI bill) and the fuel subsidy bill properly and there may have some backlog to the tune of Rs.1.5 tln. If the government follows the “accrual” accounting system, then the above impact of food & fuel subsidy bill should have been concurrently irrespective of their actual payment. Thus in the accrual system, fiscal deficit figure may have come much higher.
On Thursday, Nifty was helped by Bajaj Finance, BPCL, IOC, Indusind Bank, HDFC, Eicher Motors, Auro Pharma, HUL, Kotak Bank and ONGC by almost 19 points altogether, while it was dragged by ICICI Bank, VEDL, SBI, Infy, RIL, HDFC Bank, ZEEL, ITC, UPL and Hindalco by around 48 points cumulatively.
Overall, on Thursday Indian market was helped by selected private banks, auto makers (upbeat auto sales figure for February), OMC (lower oil), while dragged by PSBS/selected private Banks (concern of renewed surge in corporate NPA), financials, mixed FMCG & techs, media (Sun TV/INX/Kirti Chidambaram fiasco), metals (subdued China PMI data & threat of US trade protection), pharma (renewed US FDA concern), reality, energies (lower oil) and infra stocks (selling was quite broad based).
The Indian market may open mixed on Monday amid Trump tantrum on trade protection and a big win by BJP in NE states:
On Monday, the Indian market may open on mixed mode after plunging to as low as 10258 in SGX-Nifty on Friday amid Trump & Fed tantrum, when the Indian bourses were in “Holi” holiday. But the US market recovered from its day low on a lower USD and hopes that Trump may blink on his foreign metal tax rhetoric.
Indian market may be also helped by a blockbuster win by BJP in the Tripura state election, which was under the left rule for 25 years. But this was in expected line amid incumbency wave and BJP’s slogan (call) for “Chalo Paltai” (let’s change) and also in broader trend of the North East (NE) Indian states, which were scrambling for a change after years of rules under non-BJP government as a BJP government may ensure higher government capex for the state development.
But at the same time INC is also showing improving performance in other BJP ruled states also and the upbeat BJP performance in North Eastern states will be largely “sentimental” in nature as it will not alter the broader national political landscape significantly, which may be termed as mixed amid employment, GST and DeMo issues.
In any way, as BJP is now ruling in most of the Indian states and thus the onus may be now on BJP/central government to implement the structural reforms like land & labor, judicial, railways along with other economic reforms as the government will now no longer give the legacy excuse of “political obstructions” from the opposition parties.
SGX-NF
BNF
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