RyanVarghese

Contrarian Bias In Indian Banks

Long
NSE:BANKNIFTY   NIFTY BANK
I am looking for a reversal in EEMA ( Emerging Markets Asia ETF ) and with respect to that, I am anticipating a shift in sentiment in the Asian Equities as well. specifically, India which has been down by over 12% from its All-time highs. Again, I can be highly wrong with my bias but my downside could be limited from this level because major bank stocks in the Indian markets is at their crucial support.

Fundamentally, Indian banks have been lagging pretty hard. There are many reasons out of which, I would like to elaborate a few


The US-China Trade war issue is the first reason for the collapse int the equity markets.

The rise in corporate tax and Long Term Capital Gains on foreign and domestic investors have actually sparked the sell-off due to which Foreign Institutional Investors ( FII ) have been unloading their positions which they have held over two years and it does make sense to unload because they have accrued over 40% returns in a span of 3 years via Index exposure.

Along with this, there have been recent illegal transaction and fraud that has come to light in the Indian economy which has shaken the entire country because the illegal transaction/fraud has exceeded over worth USD $20 Billion (over 140,000 Crores Indian Rupees) in the last 2 years which has slowly depressed the sentiment of the investors. There have been few banks which have been hit and it has literally had a ripple effect across other banks.

Let's focus on why I have a contrarian bias.


The RBI has been cutting rates consistently for over a few quarters now and they are simply following the global central banks` ( RBNZ, RBA, ECB, BOC , US FED) trend of cutting the Interest rates. We all know the Investors look for yields and an Interest rate cut is positive for the stock market/risk assets due to its nature of appreciating during rate cut times.

Recently, the Indian Finance Minister came on wires and surprised the market by saying they are cutting corporate tax by 25% which actually gave a sudden push in the Indian Markets giving a record intraday gain of over 15% which we saw after 10 years. The reduction in corporate tax has led the Investors to pile in money back into the risk assets.

Also, I personally, think, US-China trade war could pacify or go on like this which will benefit our market as businesses from the US are looking somewhere else to do their outsourcing jobs and India is their first place of choice. For example. Apple and Amazon are looking for a space in India to open up their production offices. This will give positive sentiment in the entire market

Now, Finance Minister has also said they will introduce stimulus in the Economy which is nothing but basically printing more money and gives banks to lend it and indirectly, that will increase in the credit lending supporting the economy. Basically, India is following ECB and BOJ`s move of reducing the Interest rate and at the same time forcing citizens of India to have an exposure in the risk assets.

Now, by looking at the population, we could see a rise in volume with respect to the participants as well that will enable the index to surpass its previous resistance and take BANKNIFTY to 35,000 + levels.

Again, this is just how I am seeing the markets and its a hypothesis with an Idea generation.

Technically, there is nothing much to say about the chart. and I have just made an Inverse Head & Shoulder pattern that could be in play with Fibonacci levels that are being respected as of now.
Trade active: Initiated the trade on October 6
Comment: We have hit out first resistance at 31200 which comes in confluence with the TL.. watch out for the pullbacks in the coming expiry as global sentiment has started to sour a bit this week on US-China Tarriff issues. Expect some profit booking / pulback to take place before a massive break up occurs.

The pullback would be an opportunity to buy the dip.
Comment: Booking some profit here as we have overextended the rally based on a Week-on-week basis.

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