Monday 29 February 2016

Nifty Fut (Mar): What's The Tech Saying Ahead Of Budget?

NF need to sustain over 7215-7295 zone for any rally towards 7560-7595; 
Otherwise, it may be weak and below 7015-6960 zone, 
may again fall towards 6875-6775 area.

7-PC based consumption boost may be not sacrosanct 
as previously expected overall economic recovery magic !!


Trading Levels: Nifty Fut (Mar)

SGX-NF: 7040 (LTP)

NSE-NF: 7061 (LTP)

  SL (+/-) 10 POINTS FROM SLR          
               
For Intraday Swing  Trader          
      T1 T2 T3 T4 T5 SLR
Strong > 7170   7215-260* 7295-350 7375-435* 7475-490 7560-595* <7150
                 
Weak < 7150   7115-090* 7055-015 6990-940* 6905-875 6850-775* >7170









FOR  Conservative Positional Trader













      T1 T2 T3 T4 T5 SLR
Strong > 7170   7295* 7375 7435* 7560 7640-750* <7150
                 
Weak < 7150   7090* 7015 6940* 6875 6775-570* >7170
               

After no G-20 co-ordinated CB action on Saturday, global markets are trading somewhat lower as various statements by G-20 leaders apparently showed that they are not so much "concerned" about the current global market turmoil and they will continue to keep "close watch" on the FX world/market.

Back to home, as par our PM, today may be an "exam day" for him/his Govt, being the budget day.

Some of the important highlights, market will watch for this budget:

FY-16 actual fiscal deficit figure, which is likely to be between 3.7-3.9% of GDP.

FY:17-18-19 FRBM road map, which is expected between 3.5-3% of GDP. Too much deviation from the previously announced FRBM targets, may attract rating agencies action/downgrade.

FY-17 gross borrowing targets & capex for the Govt. A strong dose of infra spending is expected to compensate for the poor private sector investment, even at the cost of some fiscal consolidation.

7-PC/OROP implementation road map, which is expected to stagger over three years. Some measure to boost consumption through direct tax concessions, like SD increased from Rs.2 lakhs to Rs.3 lakhs and few more sops are expected.

1% cut in corporate tax as par plan of 25 to 20% within 2019 with exemptions withdrawal (revenue neutral for Govt, but overall some net higher tax outgo for some corporates also).

Hike in service tax from present 14.5% to around 18% as par GST road map (negative for overall economy as it may result in somehow higher inflation, with virtually no hope for GST implementation even by FY-17; in the back drop of current political scenario and forthcoming state elections, there is little hope for any consensus regarding passage of important bills like GST in the RS).

PSBS recapitalization road map apart from the present "Indradhanush".

Higher lock in period for LTCG from present 1 to 3 year is expected; but in the present scenario of weak market sentiment, Govt may not choose to tinker with these. 

Govt is expected to abolish DDT & STT; but taking into the revenue angle, Govt may not oblige for any STT cut.

Some Budgetary steps to boost rural economy & social sector spending aiming for the coming five state elections (in which BJP is expected to loose in all the states !!).

FY-17 divestment plan, strategic sales of Govt assets (non-core PSUS to fund PSBS)

Road map for "Start Up" & "Make In India" funding.

Road map for subsidy rationalization.

After no such economic recovery as highly expected in the last two years, market is now keeping hope on 7-PC based demand & consumption growth. But, given the staggered nature of the implementation and the current subdued market condition and tepid confidence of the Indian consumers, no big-bang consumption may actually happen apart from some low ticket ones.

Its not sacrosanct that people will start into buying spree as soon as they got the 7-PC arrears; instead they may go into savings mode for their future generations.   

Analytical Charts:



















Sunday 28 February 2016

Bank Nifty (Mar): Need To Sustain Over 13800-14200 For Any "Ray Of Hope" On The Budget Day

For BNF consecutive closing above 14200, expect 14800-15500;
Otherwise, it will be weak and sustain below 13800, 
May again fall towards 13500-13300 in the days ahead

Banking sectors reform proposals in the budget may be the driver of BNF;
But most of these proposals are already known to the market !!

In the current scenario of  " Twin Balance Sheet" challenges 
(PSBS & some corporates),
Who will fund the "India growth story" ?


Trading Levels: BNF-Mar

LTP: 13853

BNF-Mar LTP 13853

       





       
SL=+/-  25 POINTS FROM  SLR
       


















For Intraday Swing  Trader
         




     
 
      T1 T2 T3 T4 T5 SLR
Strong > 14200   14270-355* 14460-560 14620-780* 14830-880 15035-251 <14150
                 
Weak < 14150   14115-050* 13980-925 13840-795* 13725-650 13540-500 >14200
                 
                 
FOR  Conservative Positional Trader          
                 
      T1 T2 T3 T4 T5 SLR
Strong > 14200   14355* 14560 14780* 14880 15251-515 <14150
                 
Weak < 14150   14050* 13925 13795* 13650 13500-315 >14200


We all know as par "Indradhanush" blue print, announced last year, Govt will infuse Rs.70000 cr by 2019 in the PSBS, while the PSBS are supposed to raise around Rs.1.10 lakh cr from the market. 

But as par some reports, courtesy RBI's AQR effort, PSBS stressed assets may reach around Rs.8 lakh cr by Q4FY16 and further towards Rs.15 lakh cr by FY-17 from the present (Q3FY16) level of Rs.4 lakh cr.

Thus PSBS may require at least Rs.3 lakh cr in the near term just to stay afloat and BASEL-III requirements. So, Govt's "Indradhanush" project may be too late & too little and considering the deterioration of balance sheets of PSBS and the on going market turmoil (gloom & doom sentiment), it will be not easy for most of the PSBS to raise funds (except SBI for its bigger size) and under the circumstances, Govt may announce to sell some "non-core PSUS" & some SUTTI stakes to raise funds for the recapitalization effort of the PSBS. 

But even for divestment and to get a fair price, market need to be stable condition at a much more higher level than we are seeing now. Clearly, Govt need to sell those stakes in a "Bull market" years ago and not in  the current "Bear Market" scenario.

At present, due to various fiscal constraints and limitations like commitments in 7-PC/OROP, incremental allocations for infra spending (capex) and unpaid food, fertilizer and oil (FFO) subsidies for previous years, Govt is not in a position to infuse huge capital at one go to the PSBS. 

As our Govt follow "cash" instead of "accrual" accounting systems, it did not accounted the FFO subsidies, but it may be a liability in the Govt Balance Sheet. As par some analysis, if we take this unpaid FFO subsidy and nominal GDP, the fiscal deficit figure (3.7% of GDP) may be much higher and if one consider the states fiscal deficit, then the consolidated figure may be well above 8%. So, this so called fiscal deficit of 3.5-3.7-3.9% of GDP  may be nothing but an accounting tricks.

Moreover, the GDP growth rate of 7.5% is also misleading as the other high frequency economic data like electricity consumption, railway/road freights, capacity utilization of manufacturing sector, vehicle sales (2-W & 4-W), corporate earnings growth, liquor/bear sales  etc are pointing towards incremental slow down of the real Indian economy. As par some analysis, India's actual GDP growth rate under the old system may be around 5-5.5%

India's real rate of interest (RRI) may be the highest among the comparable countries. If we consider CPI (AVG 5.5%) and borrowing costs for the corporates/SMES (AVG 12.5%), the difference is 7%, which may be termed as the true RRI for the borrowing class (except housing loan) to do business in India with bank funding. 

Naturally, this high borrowing costs which prevailed in India for decades is not sustainable for business, specially in a tepid consumption demand environment for the last few years. 

Also, there are some past so called "policy paralysis/stalled projects" and along with this, ongoing transformation from the "black money" to the "white money" economy may be largely responsible for the tepid earnings of the corporates and resultant NPA fiasco of the PSBS today. 

Also India is now a high cost economy due to various reasons, like high regulatory charges, high indirect taxes and non-transmission of lower oil prices to the consumers/overall economy. 

The India Govt may be too much greedy and find an easy way to tax oil products and various cess/surcharges rather than trying to expand the income tax base, which is very low at around 10% of GDP now (standard 20-30%) and number of people actually paying any income taxes is too low.

So, unless & until the basic structural issues of our economy are properly resolved, India may be continue to be a "ray of hope" in the global economy, rather than a "real bright spot" despite its so called appeal of 4-D (demand/democracy/demography/de-regulation).

In tomorrow's budget, there may be some higher personal income tax deduction on the housing loan interest (from Rs.2 to 3 lakh), which may be positive in the short term for some PSBS (SBI) and private banks engaged in greater retail housing loans (HDFC/Kotak/Axis/ICICI/LICHSG). But, again, this is also a known factor and may be already priced in to a great extent and when corporate balance sheet is in huge stress, then its may be a matter of time, retail loans will also be in some kind of stress and so called "bright" private banks may also be affected (like Kotak/HDFC/Indusind etc).

Apart form the budgetary proposal for the Banks, depending on the Govt capex/Borrowings, FRBM road map etc, RBI may again surprise the market with a mid-policy rate cut (0.25%) just after the budget or on the occasion for a "Holi Gift" to the nation (like last time). But again there will be question of proper transmission by the banks to the borrowers/economy and market/BNF will again be sold.

Technically, BNF may be in the 4-th Wave (corrective) in the daily EW cycle and the extended targets of the same may be around 13500-12650. In the alternative scenario, if BNF closed consecutively (3 days) above 14150-14200 zone, then the impulsive 5-th Wave can take us towards 14800-15500 area.

Analytical Charts:
















Friday 26 February 2016

Global & Indian Market Update : Can G-20 Meet Help A Bit ?

Trading Idea: NSE NF (Mar)

SGX NF: 7080 (CMP)

NSE-NF: 7001 (LIP-ADJ)

Either sell below 7115 or on rise around 7150;

TGT: 7050-7025*-6960*-6925-6900-6860 (1-5 days)

TSL> 7170-7195

Note: Consecutive closing above 7195 zone, NF may further rally towards 7225-7295 & 7315-7375 area in the near term (alternative bullish case scenario from the present trading level).

In the near term, NF has to sustain over 7375-7410 zone for further rally up to 7580-7655 zone. On the downside, consecutive closing below 6860, NF may further fall towards 6775-6565 & 6480-6335 zone in the days ahead, depending upon the budget news flow.

Yesterday's railway budget may be indicating that Govt may present a rural economy oriented budget on Monday aiming at the forthcoming state elections. With little hope of any "dream budget" this time, all eyes will be on fiscal deficit road map, Govt's capex & borrowings to stimulate our economy and tax/LTCG treatment. Going by the current global & local/domestic market turmoil, Govt may not choose to tinker with LTCG this time as this may cause more market meltdown at our end. Unless and until, global sentiment improves and there are some visible structural improvement, nothing will work for our market. Also, our market may likely to see some actual earnings improvement and policy reform (GST etc) and an road map for the PSBS recapitalization amid the ongoing NPA mess.

Yesterday's announcement in the SDR mechanism by the RBI may help some PSBS in the short term, but huge capital and interest rate policy reform may be required for a long term solution. India's real rate of interest is too high & its an expensive economy & cost of doing business is also high (as incremental benefit of lower oil prices was not transmitted to the consumers/economy and there are various high regulatory charges). Also, political landscape is fast changing and people are loosing faith in NAMO/Modinomics amid various socio political issues. Recent, Jat vandalism in Haryana may caused significant loss of confidence among investors of doing business in India.

After yesterday's late oil rally ($0.82~2.5%) amid speculation of yet another production cut meeting between OPEC & Non-OPEC members in March as told by Russian Oil minister, SPF reversed the direction and now trading around 1950.

Technically, SPF has to now sustain over 1950-1960 zone for any strength and in that scenario, it may rally up to 1975-2000 & 2035-2075 and 2095-2110 zone. On the flip side, unable to sustain over 1960 area, it may again fall towards 1910-1867 & 1824-1804 zone in the near term.

For Crude (CMP: $33), formidable technical hurdle is 34-35.50 zone and only consecutive closing above that it may further rally up to 38-41. On the flip side, sustain below 30.40, it may again fall towards 26-25 zone in the near term.

Globally all eyes will be on the G-20 meet currently going on in China and comments by various Central bankers/FM(s). There are some market talk that, after this summit, China may announce significant Yuan devaluation road map as a part of co-ordinated policy action by the major global CB(s).

Apart from China, Oil, probable EU/US recession, there will be also Brexit issues and all this may be an ideal landscape for the Fed to take an wait & watch stance in 2016, with out any rate hike and probability of an US NIRP will also be there.

Analytical Charts:








Thursday 25 February 2016

Amara Raja Batteries: Will Be "Raja (King)" Only Sustaining Over 905-915 Zone

Sustaining below 905, ARBL may fall up to 800-775 in the near term

Actual TTM EPS at 28.29 and projected Q4FY16 EPS at around 30.15;
Valuation looking bit stretched 
(Avg PE around 30, whereas 25 may be more reasonable)

Trading Idea:

CMP: 882

Either sell below 890 or on rise around 905-915;

TGTS: 857*-800-775-745 (1-3M)

TSL> 930

Note: Consecutive (3 days) closing above 930 for any reason, ARBL can further rally towards 950*-990 and 1025-1065 & 1130-1375 in the short to long term (alternative bullish case scenario form the present trading level).

Q4FY16 PAT of ARBL was above street estimates on the back of superior performance led by automotive ( both OEM & replacement) and industrial (mainly from telecom sector & data growth) battery segment.

But going forward, incremental benefit of lower raw material prices (e.g. lead ) may be limited and OM may be affected.

If there is no meaningful industrial/economic recovery in India in the quarters ahead, demand of industrial & automotive batteries may be subdued and future earning growth may be limited. 

Together with Exide, ARBL enjoy a virtual monopoly (~90%) in the organized battery market and ARBL seems to be performing better than Exide with its superior business plan & pricing power.

But, with lower capacity utilization and no visible economic recovery in India, electricity may soon be in excess of demand and house hold/industrial use of battery may be limited except some pockets.

As par BG metrics and current market scenario:
(based on actual TTM & projected FWD EPS)

Current fair valuation of ARBL may be around: 785 (FY:15/TTM)

Projected fair valuations might be around: 810-880-955 (FY:16-18/FWD)



SCRIP EPS(TTM) BV(Act)  P/E(AVG) Low High Median  200-DEMA 10-DEMA
AMARAJABAT 28.29 99.5 25 783.56 784.68 784.12 868.11 870.58

AMARAJABAT 30.15 123.9 25 808.91 810.06 809.49 868.11 870.58

AMARAJABAT 35.5 154.25 25 877.75 879.00 878.38 868.11 870.58

AMARAJABAT 41.95 192.05 25 954.16 955.52 954.84 868.11 870.58

Analytical Charts: