*Market Wrap: 07/06/2017 (17:00)*
*NSE-NF (June): 9685 (+19; +0.20%) (TTM PE: 24.46; Near 2 SD of 25; TTM
EPS: 395; NS-9664)*
*NSE-BNF (June): 23608 (+176; +0.75%) (TTM PE: 29.64; Near 3 SD of 30;
TTM EPS: 795; BNS-23568)*
*For 07/06/2017:*
*Key support for NF: **9630-9570*
*Key resistance for NF: 9715-9750*
*Key support for BNF: 23700-23875*
*Key resistance for BNF: 23400-23200*
*Time & Price action suggests that, Nifty Fut (May) has to sustain over
9750 area for further rally towards 9825-9865 & 9930-10050 in the short
term (under bullish case scenario).*
*On flip side, sustaining below 9730-9715 area, NF may fall towards
9630-9570 & 9530-9470 area in the short term (under bear case scenario).*
*Similarly, BNF has to sustain over 23700 area for further rally towards
23875-24000 & 24100-24150 area in the near term (under bullish case
scenario).*
*On the flip side, sustaining below 23650 area, BNF may fall towards
23400-23200 & 23050-22900 area in the near term (under bear case scenario).*
Nifty Fut (June) today closed around 9685 in a late day up move after
RBI policy induced volatility, which made the NF for a session low of
9651; but as RBI sounded apparently less hawkish today, Nifty and
specially Bank Nifty recovered quite smartly from the day low and closed
almost 0.20% & 0.75% higher respectively. Before RBI policy, NF made an
opening session high of around 9698 , but dropped suddenly before RBI
policy amid reports of some terrorist incidence (shooting) in Iran
Parliament.
Today, as expected RBI leaves repo rate unchanged at 6.25% but cut the
SLR rate by 0.5%, which may release additional liquidity of around
Rs.60000 cr into the banking system. Moreover, RBI lowers its hawkish
inflation trajectory for FY-18, which may have fueled the speculation
that RBI’s next move may be a 0.25% cut in Aug’17 (??). These two
factors (SLR cut & less hawkish projection on inflation) may have
supported the market sentiment today by some extent despite RBI’s
overall stance is still neutral against market expectation of accommodative.
*Today RBI’s policy points are:*
RBI leaves repo rate unchanged at 6.25%
Reverse repo left at 6.00%; LAF/MSF all unchanged
*Cuts statutory liquidity ratio of banks by 50 bps to 20% of total deposits*
Ceiling on amount of securities that can be held under "held to
maturity" remains unchanged
Policy interventions inclusive access to open trade may be envisaged to
arrest slump in prices
*Easing of inflation ex food and fuel may be transient in view of
underlying stickiness in situation of rising rural wage growth and
consumption demand*
*Headline inflation for H1 2017/2018 2-3.5% and 3.5-4.5 in H2, If April
Configuration Sustains*
*Need to ensure whether or not the unusually low momentum in inflation
reading for April will endure*
5 members of MPC in favour of policy decision, Dholakia not in favour
*All MPC members declined request for pre-policy meeting with finance
ministry*
*CSO data shows slowdown in economic activity set in well ahead of
demonetization*
*'Will watch data on real eco activity.If data warrants,will act for
broader accommodation'*
*RBI revises FY18 GVA forecast to 7.3 percent Vs 7.4 percent*
RBI DY GOVERNOR: Interest Rate Policy Works Well When Transmitted
Seamlessly; RBI Has Embarked On Resolving PSU Banks' Stress
*RBI Governor: GDP slowdown more due to fundamental factors.*
Farm Loan Waivers Have Raised Risk Of Fiscal Slippages; *GST Roll-out To
Not Have Material Impact On Inflation*
*Inflation Reading For April Surprised On The Negative Side*
*Private investment slowdown deeply rooted in structural debt overhang*
*Governor Patel On Farm Loan Waiver 'Need To Tread Carefully Before
Situation Gets Out Of Hand'*
*GDP Estimates Attest Effects Of Note Ban On Economy. Govt Spending
Continues To Be Robust*
*MPC keen to avoid 'premature' action at this stage.*
*Rationalised risk weights, loan-to-value norms on home loans. *
*Policy decision today consistent with 'Neutral' stance.*
Thus, overall, although RBI is maintaining its present neutral stance,
it’s watchful (owlish) both on GDP & inflation and will wait for further
data if Q4FY17 trend of dual combination of lower GDP & lower inflation
is transitory or not. If such trend continues in Q2/Q3FY18, RBI may take
some policy action (cut). Thus, RBI is clearly data dependent and is not
in favour of any pre-mature cut. So, today’s RBI policy may be termed as
neutral.
Today’s RBI policy to reduce risk weight on specific categories of
housing loans may be slight positive for some HFC as standard asset
provisioning on such loans will go down. RBI has reduced PCR to 35% for
home loans in the Rs.30-75 lk and to 50% for HL>75 lk (from 75%).
RBI also again pointed high small savings rate in India, which may an
issue for further transmissions of lower repo rates by the banks and
called for better alignment of administered interest rates on such small
savings instruments with market rates (GSEC) and steeped up
recapitalization of the banks along with the issues of NPA resolution to
facilitate adequate flow of credit to productive sectors; clearly RBI is
still pushing the ball to the Govt’s court for NPA resolution and
further rate cut transmissions because the problem of twin balance
sheets (stressed corporate & banks B/S) and high small savings interest
in India (political issue) may be the primary problems for further rate
cut; otherwise it may be futile except helping NIM (operating margin) of
some of the lenders/banks. Although, there is enough liquidity in the
banking system, there are no demands for corporate loan as there is
severe lack of quality & eligible borrowers amid question of
project/business viability itself. Even if RBI cut by another 0.25-0.50%
in FY-18, credit flow to the corporate sectors may not improve
substantially and private investments may remain muted due to
NPA/corporate stress issues and lack of adequate demand in comparison to
installed capacity of the economy.
Any sudden change of RB stance from neutral to accommodative for an
unexpected fall of GDP in one quarter may also hurt the image &
credibility of RBI and in that scenario, INR & GSEC bond yields may
suffer,which may also cause some panic among FPIS.
Today Indian market opened almost flat following mixed global cues and
risk aversion ahead of UK election, ECB meet & Comey’s testimony.
Overnight, US market closed slightly lower (-0.23%) amid risk aversion
and fall in USD/US bond yields. Apart from various geo-political risks
(UK election, Comey’s testimony, alleged Russian involvement in US
election/ with Trump camp, GCC-Qatar diplomatic crisis), Fed’s high
probable dovish hike stance next week, US bond yields were also under
pressure die to some reports that China is active in buying/planning to
buy more USTSY bonds after its recent selling Feb-March.
But USD/US bond yields recovered slightly towards the closing NYT/US
session after another ABC news report that Comey will make White House
uncomfortable but will stop short of saying President interfered in the
FBI investigation. S&P also reconfirmed US rating yesterday and that may
have also supported the USD to some extent, Yesterday’s US JOLTS jobs
report was also upbeat and being one of the favourite job indicator of
Fed, market may be also assuming that Fed may have no issue to hike next
week; but underlying tone may be more important (hawkish/dovish).
Meanwhile, ahead of ECB meet tomorrow, EURUSD suddenly dropped by
another 0.5% on a BBG report that Draghi may be preparing for a lower
inflation projection for CY: 17-19 (1.5% against earlier 1.6-1.7%); i.e.
Draghi may be sounded dovish tomorrow although he may still indicate a
gradual taper. Eventually, ECB, BOJ, PBOC and other major central
bankers will follow Fed’s actual rate hike path and any B/S tapering in
the coming months to adjust their own policy and keep the USD parity at
present level, which may be ideal to maintain growth & inflation.
After all, Fed is the only major central bank in the world today, which
is hiking its rate on multiple times to begin the much awaited
normalization policy and B/S reduction; under these scenario, other
major central banks may have no other way, but kept themselves as
neutral, if not hawkish to keep the divergence in monetary policy at
present level.
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SGX-NF
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BNF
<https://1.bp.blogspot.com/-wgpGJ0uY5Yg/WTgD-lDg9sI/AAAAAAAAL-g/sRqcOBgixPsvNzOEOblsYBjPF-gdE1eBACLcB/s1600/Frontiza-Logo.png>
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