10 Aug ’23 Post Mortem on BankNifty RBI hikes CRR by 10%
BankNifty Weekly Analysis
Between the last expiry and today, banknifty has fallen 34pts ~ 0.08% (flattish). Compare this to Nifty which rose 0.8%. In our markets banks are the leading indicator, whereas in the US its the non-banks. That is why professionals look up to banknifty in India and Nasdaq in the US as leading indicators of trends.
BankNifty Today’s Analysis
We had a gap down opening and traded with no special punch till 10.00. The RBI Governor first announced the status quo on the repo rate of 6.5%. With the prices of food, groceries spiking, I think he made a bold move to keep the interest rate unchanged. This really excited the banks and we started to rally and took out the intraday high of yesterday.
The next 2 announcements tanked the markets, first he revised the inflation forecast for the current year to 5.4% (more pain to the poor). And then he announced a 10% hike in the cash reserve ratio that needs to be maintained by the banks (temporarily). Read the full minutes - click here.
The best way to control inflation is to reduce the liquidity in the markets, a higher CRR will do that - but is it more effective than increasing the repo rate only time will tell. The surprise announcement of withdrawal of Rs2000 notes would have added more liquidity into the system and most of these funds would have found their way into the financial markets (equity or debt). Banks may have to reassess their cash levels to maintain this additional 10% cash with RBI. It will be prudent to hear from HDFCBK, ICICIBK and SBIN on the impact (maybe we can expect a news/event in 1 week).
If you look at the 5mts chart, the fall of 499pts ~ 1.11% stands out. What is more dramatic is the low point went below yesterday’s swing-low unlike Nifty50. And the further price action was negative unlike flattish for Nifty50.
Credits to the bulls who held the ground pretty well even with so much of news/event and historically bubble style valuations. Or it could be because the bigger bears are still hibernating.
Dont be confused with a lot of trend lines. The blue one was there from yesterday, the orange line I drew today, because I felt the blue trend line may be too steep and misleading. What if the gap-up on 27th July was just a blip? If yes, the orange trend line that touches the close of 26th July should be more accurate.
The green highlight shows the double top as well as the H&S pattern in a falling market and respecting the trendlines. I wish to change by stance to 100% bearish for tomorrow.
Between the last expiry and today, banknifty has fallen 34pts ~ 0.08% (flattish). Compare this to Nifty which rose 0.8%. In our markets banks are the leading indicator, whereas in the US its the non-banks. That is why professionals look up to banknifty in India and Nasdaq in the US as leading indicators of trends.
BankNifty Today’s Analysis
We had a gap down opening and traded with no special punch till 10.00. The RBI Governor first announced the status quo on the repo rate of 6.5%. With the prices of food, groceries spiking, I think he made a bold move to keep the interest rate unchanged. This really excited the banks and we started to rally and took out the intraday high of yesterday.
The next 2 announcements tanked the markets, first he revised the inflation forecast for the current year to 5.4% (more pain to the poor). And then he announced a 10% hike in the cash reserve ratio that needs to be maintained by the banks (temporarily). Read the full minutes - click here.
The best way to control inflation is to reduce the liquidity in the markets, a higher CRR will do that - but is it more effective than increasing the repo rate only time will tell. The surprise announcement of withdrawal of Rs2000 notes would have added more liquidity into the system and most of these funds would have found their way into the financial markets (equity or debt). Banks may have to reassess their cash levels to maintain this additional 10% cash with RBI. It will be prudent to hear from HDFCBK, ICICIBK and SBIN on the impact (maybe we can expect a news/event in 1 week).
If you look at the 5mts chart, the fall of 499pts ~ 1.11% stands out. What is more dramatic is the low point went below yesterday’s swing-low unlike Nifty50. And the further price action was negative unlike flattish for Nifty50.
Credits to the bulls who held the ground pretty well even with so much of news/event and historically bubble style valuations. Or it could be because the bigger bears are still hibernating.
Dont be confused with a lot of trend lines. The blue one was there from yesterday, the orange line I drew today, because I felt the blue trend line may be too steep and misleading. What if the gap-up on 27th July was just a blip? If yes, the orange trend line that touches the close of 26th July should be more accurate.
The green highlight shows the double top as well as the H&S pattern in a falling market and respecting the trendlines. I wish to change by stance to 100% bearish for tomorrow.
