Nifty surged to almost life time high on bank earnings boost

Bank Nifty also scaled life time high; looking ahead, Dalal Street's trajectory may depend on India's election trajectory

India’s benchmark stock index Nifty closed around 22635.05 Monday (29^th April), surging +0.96% boosted by an upbeat report card by ICICI Bank. Overall, out of almost +200 points rally in Nifty, ICICI Bank alone contributed over +86 points, followed by HDFC Bank (+31 points), SBIN (+22 points), Axis Bank (+18 points), Kotak Bank (+11 points) and Indusind Bank (+6 points); i.e. banks contributed almost +175 points. Also, RIL contributed +18 points on Monday, while dragged by HCL Tech, Apollo Hospital, and Bajaj Auto.

Overall Nifty surged almost +1.38% in April; Nifty was boosted by HDFC Bank, ICICI Bank, Axis Bank, SBIN (upbeat report card by banks), Bharti Airtel (satellite spectrum after donation to BJP through EB), NTPC, Hindalco, M&M, Tata Steel, ITC and Eicher Motors, while dragged by INFY (subdued guidance), Kotak Bank (RBI regulatory action as face-saving action after Kotak donated BJP to get favorable candidate for CEO post), HCL Tech (subdued report card) L&T, RIL (subdued report card), Bajaj Finance, Sun Pharma and Titan. The Indian market was boosted by metals (hopes & hypes of Chinese recovery), banks & financials (upbeat report card), realty, media, energy, automobiles, infra, FMCG, while dragged by techs/IT (subdued guidance and flat USDINR).

India’s Dalal Street was also dragged by escalating geopolitical tension of another small WW after a friendly war drill between Israel-Iran and growing uncertainty about India’s general election outcome. Overall, India may be heading towards a hung Parliament this time instead of another blockbuster Modi win with 350 seats or even above 375-400 seats.

After two rounds of poling in various states on 19^th April and 26^th April, many experienced political analysts are now predicting at least 30-32 seats loss for the ruling BJP this time amid 5-10% lower polling in strong BJP areas. There is no meaningful Modi wave this time due to 10 years of anti-incumbent waves growing youth unemployment/under-employment and hotter inflation.

Also, the lack of any nationalistic issue like the Pulwama-Balakot surgical strike on POK just ahead of the 2019 general election is now going against BJP/Modi. The election battle has now turned into Mandal vs Masjid, Democracy vs Autocracy, and Jobless Growth vs First/Vibrant Five/Fragile Five, Muslim vs Mangalsutra. There are issues of secularism, democracy/electoral autocracy/constitution, inclusive growth/redistribution of national wealth, caste census/universal social security and even inheritance tax controversy.

Now the 3^rd phase of polling will be on 7^th April after 10 long day gap, which would be very crucial for BJP/Modi as it has to repeat the almost 90% strike rate, it had done last time in 2019, when BJP/NDA won 88 seats out of 94 seats. If BJP indeed loses 15-25 seats in the 3^rd phase of polling than last time in 2019, then it may be ‘game over’ for BJP/Modi this time as it will be almost impossible to make up these 50 seats in the rest of 4 phases of polling, in which BJP’s strike rate was much lower even in 2019. Thus by 8-10^th May (after getting clear polling trends % and on-ground surveys by various digital media channels & experts), we have an idea about whether the country is heading for a hung Parliament or not this time.

Overall, it seems that the world’s longest phase of election/polling over almost 7-weeks (19^th April to 1^st June) is designed in such a way that BJP/Modi/Shah will be able to focus more on these states/areas/LS seats, in which its strike rate was better in 2019 and the probability of the same is high this time too. In any way, this time big swing states are Bihar, Karnataka, MH, MP, RJ, UP, WB, and even Delhi (with only 7-seats-Khejriwal arrest sympathy wave), where BJP may lose 50 or more seats than in 2019, while it’s almost impossible for BJP/Modi to win significantly more seats (than in 2019) in other big states like AP, Assam, (CAA/NRC issues), Chhattisgarh (CM Soren arrest sympathy wave), GJ (Rajput caste issues), Haryana/Punjab (Kisan to Palawan/Farmers to Wrestlers issues), Odisha (no pre-poll alliance with BJD), TN (no alliance with AIDMK), Telangana, and J&K; in 2019, BJP has almost reached saturation point in its dominating states.

In known BJP stronghold states like Bihar (after an alliance with Nitish Kumar), KA, MH, MP, RJ and even in UP, BJP may lose seats this time due to various internal conflicts over rapid ‘Congressionalization’ of BJP and BJP ‘Washing Machine/ Modi detergent powder’ issues; i.e. bringing of alleged corrupted opposition political leaders into BJP and giving them election tickets depriving old/original BJP leaders/workers, sympathy wave in favor original Shiv Sena (Uddhav Thackeray) after unethical removal of the later from MH CM post and break up of Shiv Sena using money/muscle/PMLA power.

Also, RSS (Nagpur/UP lobby) may have now abandoned Modi and favored Gadkari as the next PM of BJP/NDA due to various internal issues with Modi-Shah (Gujrat lobby). In WB, BJP may lose 8-10 seats this time despite Didi’s corruption and various other anti-incumbency issues as BJP’s Hindutva/caste/North India model is no longer working now in WB, which is relatively more mature politically & intellectually.

In brief, the BJP will lose in Muslim-dominated areas in South, East, and even in West and North India. Although BJP/Modi may get a higher vote share than in 2019 in South India this time, it may not result in more seats. Overall, most of the ordinary voters across India are more worried about growing unemployment/underemployment, rising inflation/cost of living expense, and corruption rather than 4M- Mandir, Masjid, Mangalsutra, and Mandal issues.

But it seems that no political party (even BJP or INC) has any definitive plan for job creation and how to fund the huge requirement of fiscal stimulus required to turn India into a developed economy by 2047 or even by 2100. India’s public debt + liabilities (PDL) was around Rs.17.24T in FY2004 (33.95% of real GDP), increased to Rs.55.87T in FY14 under UPA (57% or real GDP) and then surged to around Rs.168.73T by FY24 under NDA (97.59% of real GDP. India’s public debt/PDL is set to scale around Rs.184T by FY25, almost at 100% of the estimated real GDP of FY25. India is expected to pay around Rs.12T as interest on public debt and set to borrow around Rs.17T in FY25; i.e. almost 70% of incremental borrowing is adjusting as interest only on previous debt.

Thus the Indian Federal government has now limited space to borrow/print LCU (INR) in a big way to fund fiscal stimulus/government spending as it will result in LCU devaluation both domestically and also globally (higher USDINR due to higher inflation). Therefore, the government should plan alternative ways to increase revenue like modification in personal tax codes so that every employed person should pay some type of minimum tax (MAT) and in lieu, the government should provide universal quality health/medicare, universal quality education, and unemployment benefits. The government should also explore part/full disinvestments of PSUs (except strategic ones to ensure national security) to fund the growing need for traditional and social infra.

India has grown from a fragile state to a developing state under Cong/INC PM Narasimha Rao/FM Manmohan Singh (1991-96), had incremental growths even under Vajpayee BJP government (1996-2004), to upbeat growths under INC/UPA (2004-2014) and NDA (2014-2024). But the country now needs monumental inclusive growth along with price stability and maximum employment to become a developed economy by 2050-2100. India needs better & expanded transport and social infra to meet incrementally higher demand from a huge/growing population. The government needs to create/supply much more infra to meet growing/elevated demand.

On 12^th April, the MOSPI data shows India’s annual CPI (inflation) eased to +4.85% in March from +5.09% sequentially, almost in line with market expectations of +4.91% and lowest since May’23. Although it may be a pure coincidence, ahead of the election, India’s sequential (m/m) CPI remains around 0%.  In March, India’s total CPI was dragged by lower food inflation led by relatively lower prices for vegetables, pulses, spices fruits and oils, and fats. Meanwhile, a slowdown was also seen in prices for clothing and footwear, miscellaneous, and housing.

Overall, India’s average CPI for 2023 was around +5.66%, while the 6M rolling average was around +5.19% in March. India’s core CPI

India’s core inflation also eased to +3.25% in March from +3.37% sequentially, while the 6M rolling average is now around +3.75%.

Overall, RBI is now not in a position to cut rates as headline CPI is still substantially above the target of +4.0% and the Fed may not cut rates before Sep’24 or even before Mar’25. RBI has to follow Fed whatever may be the domestic inflation narrative.

Technical trading levels: Nifty Future

Whatever the narrative, technically Nifty 50 Future (22750) now has to sustain over 22950-23050* for a further rally to 23260/233575-23700/24000 levels in the coming days/weeks; otherwise sustaining below 22900-22700, Nifty Future may again fall to 22600/22400-22250/22100-21900/21800-21700*/21600 and 21325*/21250-21130/20850, and further 20700-20630/20460-20280/19730 and 19400 levels in the coming days.

Similarly, Bank Nifty Future (49550) now has to sustain above 50100 for a further rally to 50775/51200-51500/51875 and 52360/52955 in the coming days; otherwise sustaining below 50000-49900, may again fall to 48000/47000-46750/46000 and 45900/44600 in the coming days.

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