Thursday, 8 March 2018

Nifty extends its slump on negative global cues and widening impact of the PNB fiasco & politics of NPA

Market Wrap: 07/03/2018 (17:00)

NSE-NF (March):10178 (-71; -0.89%)

NSE-BNF (Jan):24238 (-266; -1.09%)

For 08/03/2018:

Updated: 07:05

SGX-NF: 10205; (+27 points@0.26%)

Expected BNF opening: 24300

(Edged up on mixed global cues after us market pared deep losses on Wednesday on reports that Trump may exempt NAFTA and certain other countries from his metal tariff rhetoric for the sake of national securities; Trump also softened his trade protectionist stance against China)

Valuation metrics:

NS: 10154; Q2FY18 EPS: 407; Q2FY18 PE: 24.95; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

BNS: 24134; Q3FY18 EPS: 821; Q2FY18 PE: 29.50; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

March-Fut (Key Technical Levels)

Support for NF: 10170/10130-10095/10040 and 9960-9915/9815

Resistance for NF: 10275/10300-10350/10395 and 10435/10485

Support for BNF: 24140/24000-23850/23600 and 23450/23150

Resistance for BNF: 24550/24700-24900/25100 and 25300/25575

Technical View (Positional):

Technically, Nifty Fut-Jan (NF) has to sustain over 10300 areas for a further rally towards 10350-10395 and 10435-10485 zones in the short term (under bullish case scenario). 

On the flip side, sustaining below 10275-10240 areas, NF may fall towards 10170/10130 -10095/10040 and 9960-9915 zones in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 24700 areas for a further rally towards 24900-25100 and 25300-25575 zones in the near term (under bullish case scenario).

On the flip side, sustaining below 24650-24550 areas, BNF may fall towards 24140/24000-23850/23600 and 23450-23150 zones in the near term (under bear case scenario).

Market wrap:

The Indian market (Nifty Fut-March/India-50) closed around 10178 on Wednesday (7th March), extended its slump by another 71 points (-0.69%) on negative global cues and widening impact of the PNB fiasco. Besides some old generation private banks like ICICI & Axis in the Gitanjali jewelry scams, more high profile stressed corporates like Adani group, Videocon industries etc are now in bank/government scanner, having huge loan exposure to the Indian banks.

On Wednesday, the Indian market made an opening session high of 10254 and late day low of 10155 and fast approaching a 10% correction zone from the January’18 euphoric high of 11163 in Nifty Spot; Bank Nifty corrected by 12%, while PSBS plunged by 24%.

The NPA saga may be spreading to other corporate groups:

As par some reports, the largest Indian lender SBI is not comfortable with its huge exposure in Adani power and made a representation to the power ministry and may also call back the loan given to the Adani group. The market may be concerned about the far-reaching impact of these growing loan frauds in the Indian banking system and an eventual impact on the economy as a result of slowing corporate lending.

The fear psychosis out of recent PNB frauds & spate of FIRS, arrests of high profile banking officials, lack of decision making process may be reminding us an atmosphere of so-called policy paralysis of UPA era in 2013s, which may be a serious challenge for the so-called “green shoots economic recovery”, even if it may be debt-fuelled and backed by excessive corporate leverage.

As par reports, Banks now has to report all NPA above Rs.500 mln (50 cr) as “frauds” to the CBI, instead of above Rs.2500 mln (250 cr) reported earlier. This may choke the normal banking (lending & borrowing) activities of the banks in India.

The market may be concerned that due to the election, political populism and “gallery show”, the government is distancing itself from “business” and both BJP & INC are preparing a battleground for the 2019 general election by politicizing the NPA and the PNB fraud. Apart from SBI, all the other PSBS are now on their knees and at the same time, private banks management are alarmed over the SIFO summoning of ICICI & Axis bank CEOs amid the ongoing PNB saga.

Valuations are still stretched at Nifty PE of around 25 despite recent market correction:

Apart from bank loan frauds and the resultant additional NPA out of it, which may not be recoverable at all, the market is also under stress on stretched valuation, higher bond yields, increasing chorus of QT by the global central banks (Fed/ECB/BOJ), concern of higher inflation & fiscal discipline, mixed macro data and surging oil. FPIS are also in selling mood amid higher bond yields in the DM (developed markets, such as the US) and deteriorating Indian macros & financial irregularities.

The Indian government is also trying its best to improve the deteriorating market sentiment. On Wednesday, it briefed global rating agency Fitch about the future potential of Indian economy and seeks a rating upgrade.

The government is relying on strong macro fundamentals, the commitment to fiscal discipline adherence (3% of GDP by FY-21), stabilization of GST system and expectation of revenue pick up in the coming months. But the privatization of the PSBS (public sector banks) is not on the immediate agenda.

As par another global rating agency S&P, although government recaps plan is sufficient for cleaning the PSBS NPA, it may be taken care of any major loan fraud like one reported with the PNB.

India has the 2nd largest combined fiscal deficit among major economies:

The combined fiscal deficit for India (state + Federal) is now at 2nd highest among major economies, just below Brazil and is running consistently higher at 6.5-6.8% for years. Some of the reasons are surging government & subdued private capex, slowing economy, muted revenue collection out of GST and direct tax, political populism (farm loan waiver etc), huge bank bailouts & bank loan NPA/frauds and higher oil. The bond market may be a better reflection of India’s fiscal woes, where yields are soaring.

On Wednesday, Indian market was helped by FMCG, while dragged by almost all the other major sectors like banks & financials, automakers, techs, media, metals, pharma, reality, energies, infra and consumptions to some extent.




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