Market outlook and preferred strategy for traders in BOB

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Probably, most of you have observed Nifty is facing a great resistance at  around 10900-11000 levels. The NSE Index has tested 11000 several times, but with a new negative news every time, it hasn’t been able to cross this level.

Crude Oil, which is an important commodity to follow for Equity Investors, has recently made a new low of around $50/barrel. But even after this, market doesn’t seems ready for any major rally which could help it to cross 11000 mark!

Around the world, due to trade tensions between America and China, market of many countries were facing little or significant volatility and downfall, depending on the degree of impact. And especially after recent Apple (IPhone maker and U.S largest corporate) forecast that it may face lower sales in China due to Slowdown of economic growth in country (China), global markets saw a great pressure. This pressure was clearly visible in the Indian Equity market also when the Nifty continued to fall from 10800 levels to 10600 levels.

But interestingly, after apple forecast, it seems that China Government got a confirmation of upcoming slowdown in the economy! Investors, brokers, Business leaders etc, all were expecting and shouting about the slowdown in economic growth of China. But Chinese government merely take any step for this.

China Government was in discussion for the trade disputes with U.S. Officials but had didn’t came to any final step. As per recent announcement, China will again meet with U.S officials in next 1 week for the discussion on the same topic. Therefore, it is going to be very interesting to see what would be the outcome from this meeting.

Coming back to topic of Slowdown in China, I was talking about the confirmation which China Government finally received. And after this, Central Bank of China has slashed 1 percent CRR for banks which means Chinese banks can now lend 1 more percent out of the total deposits made by public. This move is clearly taken with a main motive to boost Growth in the economy and to lower expectations of a great slowdown in the country.

For an instance, you may think why I am discussing so much about China’s Rate cut…….. so let me tell you about this first.

I am discussing this because in last closing, SGX Nifty saw closing of around 10890. It is 170 points higher than previous closing of Nifty on Friday (4, Jan).

This 170 Point gain was also supported by Nasdaq and Dow Jones (U.S. Indexes) rally on 4th January. After release of better than expectated Job and Wage Growth data of U.S., Equity market of America surges more than 4 percent, registering one of the biggest gains in past few decades.

I am not sure whether Apple’s forecast of Slowdown in China was the main reason behind Indian Equity Market fall from 11000 level. But if you look at the momentum in SGX Nifty, I think it was a major component of that fall.

Other contributors of recent weakness in Indian market includes names of Metal and Auto sector. Whereas Auto stocks like Eicher motors, M&M fell sharply after weak sales growth numbers in December, metal stocks like Tata steel and Hindalco lose some of their shine after Brokerage Houses showed some concerns on metal stocks. Impact on export sale due to China Slowdown and weak metal prices were the main concerns of them.

However whatever we take and analyse, I think it is clearly visible now that Nifty may again go closer to 11,000 mark! After recent events that took place in China and America will improve some Global stock market environment which should be absorbed by Indian Stock market also. But don’t forget domestic reasons are also very important. Therefore, it is possible to see some difference in the momentum of India Equity market as compare to global ones.

However at the same time, it is also true that most of the Global signals are indicating that Nifty may again test previous highs of around 10950. And if PSU banks hold this positive trend and momentum for more couple of days, then it is also possible to see Nifty50 again testing and crossing important levels of 11000. It is beacause PSU bank rally will help to lower pressure from Auto and Metal space. But if Auto and Metal stocks shows some recovery from Monday onwards, then what could be the other best thing!

So, after discussing all the things we have this situation.

Signal from U.S.A.                 ✅

(Based on Nasdaq, Dow Jones 4% gain and Fed Outlook)

Signal from China                  ✅

(Based on 1% CRR cut by Central bank in China which will help in further Growth)

Global Market                         ✅

(Based on further expected talks between China and USA for Trade related matters and overall good rally in Global markets on Friday)

Election Uncertainty              ❌

(Based on upcoming Lok Sabha election which is expected to force Institutional investors to avoid any bulk or heavy purchasing in India)

Crude Oil                                  ✅

(Based on current prices of Crude Oil as brent crude below $60/barrel is positive for India)

Currency USD INR                  ❌

(Based on recent movement of USD INR rate which seems to be taking support at Rs 68-69 levels)

Bank of Baroda+Vijay Bank+Dena Bank= Short Term Opportunity?

 

After discussing about Nifty, I think we should now come to the topic of stock specific movements and ideas. I tried to find some technical calls for my readers but what I found……. none of them had any clear indication. While Some had only 60 percent probability for further uptrend, only 2-3 stocks had 70-75 probability for further rally. And therefore, I didn’t choosed to disclose them in previous week 31december – 4 January).

But for one stock, i thought I should talk about this so that traders and investors can take a look on this. That stock is BOB or Bank of Baroda.

Fundamentally, BOB is among the strongest PSU Banks in India. Bank has been able to report significant profits despite of heavy Provisioning made in 2018. For me, Bob was a value buy until it is available below Rs 150.

But after merger of Dena Bank and Vijay Bank with BOB, surely BOB will have a different picture. It is an expectation of every related party to see BOB surpasing most of the banks to emerge as the (2nd) biggest PSU bank in India after SBI, as per data of balance sheets of three banks.

Merger based position is still a gambling in BOB!

In 2018, we have seen few of the biggest mergers taking place but such events didn’t helped in a significant way to boost share prices. So, in case of BOB also, it is possible to see a range bound movement overhelming the share price of BOB. Whatever the resulted product will be, but if environment is not favorable then any corporate merger based buying will be again your pure gambling like investment in Debt Companies.

But what looks attractive to me in BOB is that……….it is trading only 33 percent higher from its 52 week low which is lower than its peers. Even, stock like PNB is trading above 39 percent higher from its 52 week low. Maybe, it could be only due to its Merger event. But when Nirav Modi Scam hit PNB stock can rise 40 percent, than why BOB not? Additionally, it is a constant profit making bank plus it is also getting benefit from Swap Ratio.

Conclusion

Overall, any purchasing in BOB at current levels should be considered a gambling, if you are buying it for only merger. But after taking its advantages (mentioned above) into account, I think it is 80-90 percent possible to see some buying in BOB in next few days. Therefore, for a most comfortable and easy situation, target of Rs 128/132 is most appropriate. But if rally in PSU banks continues, then target of Rs 140/148 could also be achieved.

However, for stoploss, it should be your desire! If you wish and thinks BOB is a pure gambling even after release of swap ratio, then you can try with placing the stoploss at around Rs 116.

 



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