Thursday, 19 April 2018

Nifty skids despite positive global cues as RBI denied any CDR relief and launched surgical strike on corporate NPA

Market Wrap: 18/04/2018

NSE-NF (April):10551 (-0.25; -0.00%)

NSE-BNF (April):25143 (-192; -0.76%)

SPX-500: 2709 (+2; +0.08%)

Market Mantra: 19/04/2018

Updated: 07:40

SGX-NF: 10585 (+34; +0.32%)

Expected BNF opening: 25230 (+0.35%)

SPX-500: 2712 (+2; +0.07%)

(Gap-up opening on positive Asian cues amid higher oil on Saudi Jawboning, higher USD and hopes of a trade pact/TPP as Trump meets Abe; US market closed mixed on a slump in IBM amid muted earnings but helped by energies)

March-Fut (Key Technical Levels)

Support for NF:

10570/10540-10515/10475-10430/10400*-10370/10340

Resistance to NF:

10615/10655-10675*/10725-10765/10815-10865/10915

Support for BNF:

25200/25050-24950*/24800-24600/24400-24250/23950

Resistance to BNF:

25450*/25655-25775/25850-26050/26150-26300/26525

Support for SPX-500:

2700/2690-2675/2655-2640/2610

Resistance to SPX-500:

2720/2730-2750/2765-2785/2805

Technical View (Positional-Nifty, Bank Nifty, SPX-500):

Technically, Nifty Fut-I (NF) has to sustain over 10615 for a further rally towards 10655/10675-10725/10765-10815/10865 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10595 NF may fall towards 10540/10515-10475/10430/10400-10370/10340 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25500 for a further rally towards 25655/25775-25850/26050-26150/26300 in the near term (under bullish case scenario).

On the flip side, sustaining below 25450, BNF may fall towards 25200/25050-24950/24800-24600/24400 in the near term (under bear case scenario).

Technically, SPX-500 now has to sustain over 2730 for a further rally towards 2750/2765-2785/2805 in the near term (under bullish case scenario).

On the flip side, sustaining below 2720, SPX-500 may fall towards 2700/2690-2675/2655-2640-2610 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10526; Q2FY18 EPS: 410; Q2FY18 PE: 25.67; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 25102; Q3FY18 EPS: 820; Q2FY18 PE: 30.61; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220


The Indian market (Nifty Fut/India-50) closed around 10551 on Wednesday, almost unchanged but skids from the day high of around 10597 on reports that RBI will not oblige to provide any CDR (corporate debt restructuring) relief to the banks and it denied to alter any provisions of its February circular for the same. RBI defends 180-day time given to resolve stressed assets contrary to the earlier market expectation that it may be extended by another 180 days through the NCLT route.

As a reminder, banks and the overall market rallied in the last few weeks on the perception that RBI will pay heed to the IBA (Indian Banks Association) request to alter some provisions for this CDR circular. As a result, Bank Nifty tumbled on Wednesday and Nifty Fut made a low of around 10520 on the RBI denial, but it recovered and closed almost flat in the closing hour rally in FMCG/ITC on hopes of a normal monsoon this year.

Banks sink on RBI’s surgical strike on corporate NPA (and frauds):

RBI deputy governor Vishwanathan has defended the 1-day default clause of 12th Feb circular saying “default is a lagging indicator and not a leading indicator of financial stress, especially for the large corporate loans and lenders need to be proactive”. As RBI does not relent on corporate NPAs vide its Feb circular and ups its ante on the excessive corporate leveraging, banks stocks sink. The market is concerned that this Feb NPA/CDR circular will dig out more NPA under the carpet, which was kept hiding in the disguise of various CDR for years after years.

RBI deputy governor said, “banks often avoid recognizing big stressed assets; Feb 12 circular aims to cut default arbitrage”. RBI also warned against herd mentality of bankers to grow retail loans and said “retail loans not a panacea; risks need to be assessed and priced. For the small borrower/MSME who may not have the wherewithal to bring funds swiftly in the event of non-payment by clients, the framework makes an exception. The search for that perfect time for a long overdue reform can become a never-ending exercise”.

The RBI deputy governor further added that “An early identification of stress & loan modifications in response would provide sufficient time for lenders to put in place the required resolution plan. One has to note that default in payment is a lagging, not leading indicator of the financial stress of a borrower.  The idea is to nudge lenders & borrowers to take timely corrective action so deterioration in the asset quality is avoided”.

RBI deputy governor-“What the revised framework does is to enjoin upon the banks as creditors to enforce their contracts or renegotiate their contracts with their borrowers, so that they are not in default in the first place. Efforts by lenders & borrowers have been to avoid the account has to be de jure classified as NPA, notwithstanding the de facto status. So far, defaults on bank borrowings have not attracted similar reactions, as yields on the bonds do”.

RBI deputy governor- “February 12 circular aims to cut default arbitrage; will issue regulatory norms for credit rating agencies under new framework and the new framework seeks to nudge bankers to identify bad assets & to start resolution early in the cycle. Banks often avoid recognizing big stressed assets; Feb's debt resolution framework gives banks flexibility to resolve the bad debt. Debt recast schemes/CDR was needed in absence of bankruptcy code and now need focus on NPA stock along with the flow of NPAs”.

Thus, it’s clear that RBI will treat even a 1-day corporate default as a sign of financial stress and will not entertain any request for any types of CDR available earlier as the IBC/NCLT resolution mechanism is now available and will be the only instrument through which corporate stress (NPA/NPL) will be addressed. Banks are concerned that this will not only lead to a sudden surge in NPA provisions but may also clog the NCLT system, which is judicial in nature.

RBI will not delay further it’s war on the corporate NPA and will act pre-maturely or pro-actively rather than waiting for years for the NCLT resolution as it will eventually make the valuation of the underlying asset much lower than the loan obligation. This is now clearly visible in many of the big corporate NPA resolution effort at the NCLT.

For decades, Indian banks, be it public or private were more pro-active in hiding the big corporate NPA by providing more and more loans to cover the earlier loans obligation rather than actual resolution and the whole system was working like a great “Ponzi scheme” (like paying the SBI credit card with ICICI credit card and so on). RBI and the government will now ensure deleveraging of the stressed corporates in the line of China/PBOC rather than kicking the can down the road.

On Wednesday, Nifty was supported by ITC, Wipro, Ultratech Cement, ZEEL, ONGC and others by almost 42 points (31+11), while it was dragged by HDFC Bank, Axis Bank, RIL, HDFC, Kotak Bank, Indusind Bank, ICICI Bank, M&M, IOC, Titan and others by around 56 points (40+16) cumulatively.

Overall on Wednesday, Indian market was helped by FMCG, media (ongoing IPL and forthcoming election season may be helpful for ads), metals (US sanctions on a Russian aluminum co), reality, consumption, and infra to some extent, while it was dragged by banks & financials, automobiles, techs, pharma, energies.

Global cues were positive during Indian market hours on Wednesday:

US stock future (SPX-500) was up by 0.33% at a 3-1/2 week high and European stocks were up by also 0.33% at a 2-1/2 month high.  An upbeat start to Q1CY18 corporate earnings season was boosting stock prices with Morgan Stanley up nearly 2% in pre-market trading after it reported stronger-than-expected Q1 revenue.  Also, reduced geopolitical tensions on the Korean peninsula were lifting global stock prices after President Trump said Pompeo met with North Korean leader Kim last week and a "good relationship" was formed. 

Asian stocks closed mostly higher: Japan +1.42%, Hong Kong +0.74%, China +0.80%, Taiwan +0.35%, Australia +0.34%, Singapore +1.70%, South Korea +1.27%, India -0.18% (Sensex). 

China's Shanghai Composite recovered from a 10-3/4 month low and moved higher after the PBOC cut the reserve requirement for selected banks and as Chinese semiconductor stocks rallied on speculation the government may step up support for the sector after the US banned China's ZTE Corp from buying American components for 7-years. 

Japan's Nikkei Stock Index climbed to a 1-1/2 month high as trade tensions eased as early signs of the Trump-Abe meeting showed no new trade demands from the US; also some early drops in Yen have helped the market.

Asian equity markets were mostly higher as the region got a tailwind from overnight US session where sentiment was lifted by encouraging earnings; gains were led by the Nasdaq after Netflix shares surged on strong subscriber numbers.  A higher oil and metals have also helped the market.

ASX-200 was positive but with upside capped by weakness in the largest weighted financials sector amid an ongoing Banking Royal Commission grilling and after CYBG flagged a GBP 202 mln pre-tax charge.

Hang Seng and Shanghai were underpinned at the open in reaction to the PBOC’s surprise 1% RRR cut for most banks and a CNY 150 bln Reverse Repo operation. US Commerce Department launched a probe on imports of some types of steel wheels from China, while it was also said to have made a preliminary finding that aluminum sheet imports from China benefit from unfair subsidies.

The European equities have taken the lead from Asia and US with all major bourses in the green as earnings come into focus. The FTSE 100 was outperforming, fueled by the weaker GBP as the UK inflation rate drops to the lowest in a year. Almost all sectors were resting in the green, with materials outperforming on the firmer base metal prices while consumer discretionary lagging behind.

But, European stocks also turned volatile driven by steep declines in the auto/ tire sector, led by tire makers after a bellwether issuing a profit/guidance warning. The catalyst was Continental which cut its forecast for FY adjusted EBIT margin by a small margin to just above 10% from the previous view of around 10.5%, citing negative currency impact and inventory revaluation, mainly in the tire business, sending its shares sliding 4.3%, and dragging the rest of the sector with it.

Oil closed higher on Tuesday amid Kuwaiti Oil Minister’s comment that OPEC and its allies such as Russia will consider maintaining their production cuts beyond the end of the year when they meet in June to assess the market. Crude oil prices were also undercut by a stronger dollar index and reduced Middle East tensions. But oil is also getting support by the continued narrative of middle-eastern tensions with the latest source reports suggesting that weapons inspections have been delayed in Douma, Syria amid gunfire on the site.


The dollar index on Tuesday closed higher on comments from Treasury Secretary Mnuchin who said President Trump's comments Monday about Russia and China devaluing their currencies was a "warning shot" and it was not about wanting a weak dollar. There was also weakness in EURUSD after the German Apr ZEW survey expectations of economic growth fell unexpectedly amid Trump’s trade war rhetoric and a higher EUR hovering around 1.25.



SGX-NF


SPX-500


BNF


USDJPY

Wednesday, 18 April 2018

Nifty edged up on positive global cues and monsoon and NCLT/NPA resolution optimism

Market Wrap: 17/04/2018

NSE-NF (April):10549 (+6; +0.06%)

NSE-BNF (April):25533 (+3; +0.01%)

SPX-500: 2706 (+29; +1.07%)

Market Mantra: 18/04/2018

Updated: 08:00

SGX-NF: 10595 (+46; +0.44%)

Expected BNF opening: 25445 (+0.45%)

SPX-500: 2710 (+3; +0.13%)

(Gap-up opening on positive global/US cues amid surge in Netflix and other tech shares on upbeat earnings; but banks and financials were under pressure on muted report card; report of direct telephonic talks between US President Trump and North Korean President Kim has also boosted the risk-on sentiment; but surge in Hong-Kong-HIBOR rate have also affected the regional market sentiment).

March-Fut (Key Technical Levels)

Support for NF:

10570/10520-10480/10430-10400*/10370-10340/10280

Resistance to NF:

10615/10655-10675*/10725-10765/10815-10865/10915

Support for BNF:

25200/25050-24950*/24800-24600/24400-24250/23950

Resistance to BNF:

25450*/25655-25775/25850-26050/26150-26300/26525

Support for SPX-500:

2690/2675-2655/2640-2610/2595

Resistance to SPX-500:

2720/2730-2750/2765-2785/2805

Technical View (Positional-Nifty, Bank Nifty, SPX-500):

Technically, Nifty Fut-I (NF) has to sustain over 10615 for a further rally towards 10655/10675-10725/10765-10815/10865 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10595-10570 NF may fall towards 10520/10480-10430/10400-10370/10340 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25500 for a further rally towards 25655/25775-25850/26050-26150/26300 in the near term (under bullish case scenario).

On the flip side, sustaining below 25450, BNF may fall towards 25200/25050-24950/24800-24600/24400 in the near term (under bear case scenario).

Technically, SPX-500 now has to sustain over 2730 for a further rally towards 2750/2765-2785/2805 in the near term (under bullish case scenario).

On the flip side, sustaining below 2720, SPX-500 may fall towards 2690/2675-2655/2640-2610/2595 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10549; Q2FY18 EPS: 410; Q2FY18 PE: 25.73; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 25334; Q3FY18 EPS: 820; Q2FY18 PE: 30.90; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220


The Indian market (Nifty Fut/India-50) closed around 10549 on Tuesday, edged up by almost 0.06% on positive global cues, surprised China RRR cut @1% for some selected banks. The Indian market sentiment was also boosted by optimism about Q4 earnings and normal monsoon forecast by IMD this year and hopes of a speedy NPA resolution under NCLT/IBC mechanism.

The market sentiment was also buoyed by another report that RBI may extend NCLT resolution time frame for another 180 days and may also dial back partially its February circular banning all the existing CDR (corporate debt restructuring) routes so that banks will not require making provisions for the same in Q4FY18. Nifty Fut-I made an opening minute high of around 10568 and mid-day low of 10501 before closing around 10549 amid positive EU cues in a day of moderate volatility.

Indian 10Y bond yield edged up to 7.527% from 7.489% earlier and well off the RBI induced low of 7.123% as oil is surging higher, which may make fiscal discipline task of the government tougher. As a reminder, a higher bond yield is bad for the banks in addition to corporate India. Almost 50% of the operating incomes for the banks, especially the public sector ones are dependent on their bond portfolio.

The recent shortage of cash at various ATMs across the country may be also affecting the market sentiment as it reminds the days of the DeMo last year. Although the government is assuring and downplaying the same, the reasons behind the sudden surge in cash requirement may be a harvesting season as well as marriage season in North India and over & above all, the forthcoming state elections.

But it also shows that India is still an informal cash economy to a large extent despite government effort of the digital and formal economy. Thus, acute shortage of cash at the ground level may again disrupt the informal economy and also the GDP of the country in the coming days.

On Tuesday, the market was also boosted by the 1st resolution of the NCLT/NPA cases (so-called “dirty dozen”), when VEDL’s bidding proposal for stressed Electrosteel was accepted by the NCLT. Resolution of several other stressed companies may be on the card in the days ahead as the 180 days RBI deadline is looming and this may be a great relief for the banks.

But the problem is that the acquiring companies in most of the cases are itself stressed and high balance sheets debt level like VEDL, JSW Steel or Tata Steel. These companies will most probably take additional debt from the same consortium of banks to fund the acquisition of the NCLT companies and thus it may be a simple transfer of bank debt to larger companies having huge credibility and much better managerial capabilities.

Looking ahead the success of the NCLT resolutions may depend upon the actual viability of the stressed project. The market is also concerned about the growing instances of corporate loan frauds after the PNB “loot” (theft) came into the limelight. It’s now clear that a significant part of the NPA (debt pile) may be unrecoverable as that is related to the corporate frauds having little assets left over for the recovery.

Apart from earnings, macroeconomy, global cues, the Indian market may also focus on the domestic politics and elections in the coming months in preparation for the 2019 general election, which may be also advanced by few months for the “one nation, one vote” concept.

On Tuesday, Nifty was helped by ITC, HDFC, ICICI Bank, RIL, HUL, Power Grid, HDFC Bank, Indian Oil, NTPC, M&M and others by almost 57 points (47+10), while it was dragged by Axis Bank, Infy, L&T, TCS, Kotak Bank, Maruti, Sun Pharma, Wipro, Bharti Infratel, Tata Motors, IBULLS Housing and others by around 34 point (24+10).

Overall on Tuesday, Indian market was helped by mixed private banks and financials, FMCG, metals, reality, consumption, energy, infra and MNC, while it was dragged by automobiles, techs, media, pharma, and PSU banks.

Global cues were positive during Indian market hours on Tuesday:

US stock future (SPX-500) was up by 0.47% at a 3-week high on expectations of strong S&P-500 Q1 corporate earnings results. Netflix was up by over 7% in pre-market trading after it reported better-than-expected Q1 earnings and guidance.

European stocks were up by 0.63% as automakers gained when China removed a two-decade restriction and will let foreign car makers own more than 50% of local ventures, which should boost foreign automakers profits.  Also, exporters gained after EUR fell back from a 2-week high and moved lower, which is positive for earnings for European exporters. But, gains were limited in European stocks after subdued German-ZEW survey expectations of economic growth for April, highlighting the ongoing trade tensions instigated by Trump and a stronger EUR.

Overall, risk-on trade was encouraged by the limited fallout from a US-led strike on Syria over the weekend as a one-off, except for the occasional daily Israeli airstrike on Syria. The market sentiment was also improved on the US government's announcement it has not decided on additional sanctions on Russia, suggesting tensions between Moscow and DC are easing. The market was also buoyed as Trump dials back both the FX manipulation tweets and a threat of Russian sanctions.

Asian stocks closed mixed: Japan +0.06%, Hong Kong -0.83%, China -1.41%, Taiwan -1.32%, Australia unchanged, Singapore +0.03%, South Korea -0.17%, India +0.26% (Sensex).

China's Shanghai Composite fell to a 2-1/4 month low after China Mar industrial production rose +6.0% y/y, the slowest pace of increase in 7 months, and as technology stocks tumbled after the US banned ZTE Corp, China's second-largest telecommunications gear-maker, from buying American technology.  Chinese bank stocks may get a boost in Wednesday's session as the PBOC, after Chinese markets closed Tuesday, cut some banks' reserve requirement ratio by 1.0%, effective Apr 25.

China’s GDP and other economic data were mixed on Tuesday:

China’s Q1 GDP print just met estimates (on a Y/Y basis and missed Q/Q) while industrial production in March came in below forecasts, but retail sales were upbeat: China Q1 GDP Y/Y meet at 6.8%, versus +6.8% exp. and +6.8% prior, China Retail Sales Y/Y beat at 10.1%, versus +9.7% exp. and +9.4% prior, China Industrial Production Y/Y miss at 6.0%, versus +6.3% exp. and +6.2% prior, China Fixed Asset Investment Y/Y MISS at 7.5%, versus +7.7% exp. and +7.9% prior.

Asia equity markets traded with a somewhat indecisive tone after the positive momentum from Wall St waned as the region digested mixed data releases from China including GDP. ASX-200 saw mild gains amid a slew of corporate updates, while Nikkei-225 was flat with price action contained by a firm JPY. Hang Seng and Shanghai were choppy in reaction to the mixed economic data.


European equities had shown strength on the back of improved risk sentiment with Syrian tensions continuing to abate. This is most noted in the materials and IT sectors, with both leading their peers. Negativity is noted in consumer discretionary, led by Reckitt on an analyst downgrade.




SGX-NF


BNF 


SPX-500


GBPUSD

Tuesday, 17 April 2018

Nifty soared on positive global cues amid Syrian relief and hopes of RBI relief on NPA/NCLT provisions, rate cuts, and a normal monsoon

Market Wrap: 16/04/2018

NSE-NF (April):10545 (+55; +0.53%)

NSE-BNF (April):25539 (+120; +0.48%)

SPX-500: 2678 (+22; +0.81%)

Market Mantra: 17/04/2018

Updated: 08:00

SGX-NF: 10535 (-11; -0.10%)

Expected BNF opening: 25300 (-0.10%)

SPX-500: 2686 (+4; +0.16%)

(Flat opening on positive global cues amid Syrian relief rally, US & Japanese political jitters and mixed China economic data/GDP/IIP/Retail sales amid ongoing trade war tensions with the US)

March-Fut (Key Technical Levels)

Support for NF:

10490/10450-10400*/10350-10280/10260-10200/10170

Resistance to NF:

10555/10575*-10610/10635-10675/10725-10765/10815

Support for BNF:

25150/25050-24950*/24800-24600/24400-24250/23950

Resistance to BNF:

25350/25450*-25655/25775-25850/26050-26150/26300

Support for SPX-500:

2675/2645-2630/2605-2580/2545

Resistance to SPX-500:

2695/2705-2730/2750-2765/2785

Technical View (Positional-Nifty, Bank Nifty, SPX-500):

Technically, Nifty Fut-I (NF) has to sustain over 10575 for a further rally towards 10610/10635-10675/10725-10765/10815 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10555 NF may fall towards 10490/10450-10400/10350-10280/10260 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25500 for a further rally towards 25655/25775-25850/26050-26150/26300 in the near term (under bullish case scenario).

On the flip side, sustaining below 25450-25350, BNF may fall towards 25150/25050-24950/24800-24600/24400 in the near term (under bear case scenario).

Technically, SPX-500 now has to sustain over 2705 for a further rally towards 2730/2750-2765/2785 in the near term (under bullish case scenario).

On the flip side, sustaining below 2695, SPX-500 may fall towards 2675/2645-2630/2605-2580/2545 in the near term (under bear case scenario).

Valuation metrics:

Nifty-50: 10528; Q2FY18 EPS: 410; Q2FY18 PE: 25.68; Avg FWD PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360

Bank Nifty: 25321; Q3FY18 EPS: 820; Q2FY18 PE: 30.88; Avg FWD PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220

The Indian and global market story on 16/04/2018:

The Indian market (Nifty Fut/India-50) closed around 10546 on Monday, soared by almost 0.53% on positive global cues amid Syrian relief rally and hopes of RBI relief for NPA/NCLT provisions, rate cuts and a normal monsoon this year. Nifty-I made an opening minute low of 10431 and a closing session high of 10549 in a late day rally amid a day of moderate volatility. FMCG, automobiles, housing finance companies cheered the buzz of a normal monsoon.

On Monday, IMD forecasts normal monsoon (97% of long-term average) for 2018 with a very low probability of a deficit. Thus India is getting a normal monsoon for the 3rd consecutive year despite some threat of La-Nina/neutral IOD conditions currently and a high probable El-Nina condition during the monsoon season. Monsoon rain may swing 5% in either way from the forecast. In 2017, the Indian monsoon was around 95% of long-term average.

“The country is likely to see normal monsoon rains, though there’s a threat from an anomalous warming in the Indian Ocean”, the India Meteorological Department (IMD) said on Monday.

As par reports, the Indian government is exploring the possibility of some NPA provisions relief for the MSME sector under NCLT rules. After DeMo and GST blues, stringent NCLT/NPA rules may be another disruption for the MSME sector, which have a huge contribution for the employment and the government, is concerned that due to stringent NPA/NCLT resolution issues, many MSME may force to shut down abruptly, causing mass unemployment in the economy.

Thus the government does not want to take any “unemployment” risk, especially in the election year and may extend an additional time by another 180 days for NCLT resolution over the prescribed 180-day limit. Also, the relaxation of 1-day default period of NPA is under active discussion. Banks, especially the public sector banks may benefit from this as it will delay the NPA provisions. The government will have to provide less capital (recaps) to the public sector banks also.

Meanwhile, the Indian government is quite confident that the economy will clock GDP growth of around 7.5% in FY-19 and 9% (8.5-9.5%) average growth by 2018-2022. The market also got some boost after Surjit Bhalla, an influential member of the Prime Minister’s Economic Advisory Council said that although the RBI continues to be in a wait and watch mode as its top priority is to keep inflation under check, improving economic fundamentals may lead to rate cuts in the months ahead.

Meanwhile, data shows that Indian WPI inflation for March edged down to 2.47% from 2.48% against an estimate of 2.58% on Y/Y basis on lower food but higher fuel inflation, while WPI manufacturing inflation also edged down to 3.03% from 3.04%. The lower WPI inflation may have also boosted the market sentiment on Monday.

Elsewhere, an analysis of the Business Optimism Index in the country conducted by Dun and Bradstreet reveals that the business sentiment is down owing to trouble at leading banks and clampdown on certain lending practices.; in brief recent spate of Bank frauds has affected the Indian business sentiment significantly.

Although overall resolution process at NCLT for the big corporates is still mixed, the market is getting some support as banks are on the way to recover Rs.77 bln from 6 big NPA cases out of the first tranche of “dirty dozen” list sent by RBI. The companies are Amtek Auto, Electrosteel, Monnet Ispat, Bhusan Power, Bhushan Steel and Binani Cement.

Thus Indian market soared on Monday for various factors such as NPA provision relief, hopes of normal monsoon, big NCLT resolution, and change in IBC/NCLT rules coupled with Syrian relief rally.

The US has added India to its currency manipulation watch list:

But there was another headwind in the form of US accusations for the currency manipulation as India is added to the watch list in US currency manipulation report. The semi-annual US Treasury Department report on currencies was released late Friday. Although no country was named as a currency manipulator India was added to the watch list that already includes China, Germany, Japan, and South Korea.

Although the report is itself “toothless”, however, this report might be an early sign that the trade dispute from the US (Trump) could open up a new front on India despite “ the hug politics” from NAMO:

"India increased its purchases of foreign exchange over the first three quarters of 2017. Despite a sharp drop-off in purchases in the fourth quarter, net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2 percent of GDP".

"India has a significant bilateral goods trade surplus with the United States, totaling $23 billion in 2017, but India's current account is in deficit at 1.5 percent of GDP and the exchange rate is not deemed to be undervalued by the IMF," the report said.

"Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary."

It may be worth to note that in 1975, USDINR was around 7.00, equivalent to USDCNY currently around 6.50; USDINR is currently around 65, almost 10 times devalued against Chinese Yuan and a great source of imported inflation as the country imports almost 80% of its crude oil requirement.

On Monday, Nifty was helped by HDFC, ITC, HDFC Bank, Kotak Bank, L&T, TCS, Cipla, Maruti, M&M, Grasim and others by 87 points, while dragged by Infy (poor report card), Tata Motors (buzz of Job cuts at JLR-UK) SBI, RIL, Wipro, ICICI Bank, ONGC, Titan, VEDL, Gail and others by around 33 points cumulatively.

On Monday, overall Indian market was helped by selected private banks (HDFC twins and Kotak), financials, automobiles, FMCG (hopes for normal monsoon), media, selected metals, pharma, reality, consumption, infra, while dragged by public sector banks, selected techs, and energies (lower oil).

On Monday, global cues were mixed during the Indian market hours:

US stock future (SPX-500) was up by 0.62% and European stocks were edged down by 0.13% on higher EUR amid that speculation there will be no retaliation by Russia to the US, French, and UK airstrikes and missile attacks against Syrian chemical weapons installations late Friday night. Crude oil and government debt prices tumbled on reduced safe-haven demand as no immediate fall-out was expected from the weekend strikes on Syria from Russia.

The 10Y US bond yield rose to a 3-week high of 2.86% and the German 10Y bund yield rose to a 3-week high of 0.55%. US ambassador at UN, Haley said Sunday that US Treasury Secretary Mnuchin will announce new sanctions on Monday against Russia that "go directly to any sort of companies that were dealing with equipment" related to Syria's chemical weapons program. But later Trump dialed back his Russian sanction rhetoric also.

Asian stocks closed mixed: Japan +0.26%, Hong Kong -1.60%, China -1.53%, Taiwan -0.10%, Australia +0.21%, Singapore -0.12%, South Korea +0.10%. Lower USD was and renewed US-China trade war tensions also dragged the Asian market sentiment on Monday.

Chinese stocks closed lower, led by losses in bank stocks, after reports that the PBOC may remove the current ceiling for commercial banks' deposit interest rates, which could cause the net interest margin (NIM) at banks to narrow and reduce their profits.

Asian stocks traded with a mixed tone as focus centered on air strikes on Syria over the weekend and Chinese data. The anticipated US-led response on Syria finally took place on late US Friday, which was seen as somewhat of a slap on the wrist as the US decided to hit only 3 targets against the earlier “estimate” of 8 and with the wave of strike action already declared to be over within 40 odd minutes; it was a very short and “one-shot” action.

As such, US equity futures gapped higher at the open, while ASX 200 and Nikkei 225 were also in the green as fears of an escalation subsided. Conversely, Shanghai and Hang Seng were negative following the miss on Chinese lending data last week and with Tuesday’s Chinese GDP adding to the risk factors, while the PBOC also announced to raise the 14-day reverse repo rate by 5 bps which were in-line with the hikes seen in money market rates in reaction to the March Fed hike.

But, this PBOC action saw an increase in money market rates in Hong Kong, while underperformance was led by Rusal which tumbled over 20% after the US announced to impose further Russian sanctions.

Japan was also under some pressure on increasing political jitters of Abe & Co. Markets are concerned about the series of scandals plaguing Abe could lead to his early resignation, putting the future of Abenomics, and the BOJ's QE in jeopardy. The approval rating for Abe fell to a record low of 26.7% in a survey published Sunday. He’s been forced to repeat denials of involvement in scandals as thousands called for his resignation in a protest.


European stocks opened mixed on Monday, following the mixed tone from the Asia-Pacific session as investors remain wary of potential escalating tensions regarding Syria. The anticipated US-led response on Syria finally took place on Saturday, which was seen as somewhat “symbolic and muted”. A higher EUR and GBP was also negative for the European/UK stocks. Energies dragged as oil tumbled, but pharma was upbeat amid M&A buzz.





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