The Indian market (Nifty Future) closed around 11730.00 on Monday, surged almost +0.43% amid positive global cues after an upbeat China manufacturing PMI coupled with domestic optimism like hopes of an imminent RBI rate cut and increasing probability of a big win for the Indian PM “Chowkidar” (honest) Modi in the forthcoming general election. But Nifty future also fades from the session high of 11822.75 (10-months high) and closed near the session low of 11708.25 as there is no “Modi wave” unlike in 2014 and NAMO may not get a simple majority this time; regional parties and INC may gain.
Overall, the Indian market soared almost +7.70% in March, while jumped around +7.05% in Q1-2019. The March rally was aided by Modi optimism, positive global cues, and lower USDINR, while also undercut by higher oil and subdued earnings growth.
The Indian market is quite optimistic that despite strong regional parties and an upbeat INC led by “Chor” (thief-dishonest/corrupted as leveled by the BJP) Rahul Gandhi, BJP/NDA will be able to win a simple majority, although that may be less than the 2/3rd majority, required for smooth legislative actions.
After success of “surgical strike” in land (Uri), sky (Balakot) and space (project “Shakti” to destroy a low orbit satellite with a missile, in an indirect reference to China and Pakistan), the BJP/NDA is quite confident that they will get around 275-300 seats, while opposition parties are calculating it as between 125-160, considering very poor base of BJP in some of the large Indian states like WB, Kerala, TN, AP, Telangana, and Odisha.
Moreover, in Karnataka, MP, Rajasthan and Chhattisgarh BJP may lose significant seats (around 50%) compared to the 2014 election, under “NAMO tsunami”, not visible this time. In UP, the largest Indian state and have always a vital role in Indian general election, BJP may also get a significant setback amid coalition between the SP and BSP; last time BJP got 71 seats from the UP, out of its 284 seats.
Amid all these political permutations and combinations, the spillover effect of DEMO and also a complex GST, negative for small business, in all the above-mentioned 11-states, BJP may get around 65-95 seats out of 333. And thus BJP has to win 206-176 seats out of remaining 207 seats for a simple majority of 271 seats out of 540, which may be very tough this time as the nation is divided amid the debate of who is actually the “Chowkidar” and who is “Chor”.
Despite no united face of a PM candidate. INC’s Rahul Gandhi is the closest to Modi for the PM candidate led by a divided/united opposition (depending on various scenarios after the election result). In 2014, BJP won 284 seats alone and its coalition NDA won total 336 seats. This time, various other opinion polls suggest that BJP may get around 240 seats alone, 31-less than the simple majority and negative for the political stability (Modi ‘call’).
Thus, sensing very tough political battle this time, Modi is now busy with his “surgical strike” in space and also on Pakistan. We may see even another “surgical strike” (by a missile this time) on the “public location” of JEM chief/terrorist Masood Azhar in the coming days, just ahead of the election. There is no debate about the Indian economy or other vital development/structural issues neither in the media nor among the political parties as all are obsessed in the TV war room amid Pakistan terror/proxy war.
But the public (voters) are now more concerned about their own economic status and standard of living rather than Pakistan war-mongering. Whatever may be the narrative from two neighbors, the present real map/LOC between India and Pakistan will not change under the current geopolitical scenario. Having said this, Modi is far ahead of his political opponents for his nationalistic and anti-corruption (“Chowkidar”- security guard of the nation) stance and this is his biggest advantage in the election.
But, the general public is also confused about the credibility of other “Chowkidars” (honest and clean of any corruption people) in the BJP party apart from the PM Modi and the ongoing duet between “Chowkidar” and “Chor” is now the main narrative of the Indian election.
From politics to economics, the Indian market is also upbeat on hopes of another RBI cut on Thursday (4th April) by -0.25% to 6.00% after Fed’s flip-flops a few weeks ago. It will be easy for the RBI now to have a “dovish cut” (change of stance from neutral to accommodative) ahead of the election to spur lending with lower interest rates among the MSMEs despite surging NPA/NPL. Already, various banks are slashing their PLR ahead of the RBI.
On Monday, the Indian market was also upbeat on a report that the government will stick to its fiscal discipline commitment of 3.4% target (fiscal deficit) in FY-19 on March (financial year-ending) boost of GST collection of above Rs.1.06T, the highest for the FY. But the FY-19 direct tax collection may come around Rs.11.5T, less than the revised estimate of Rs.12T. In brief, the Indian government is planning to borrow Rs.3.40T for H1FY20 (Apr-Sep) and will raise Rs.200B every week.
On the macro front, there was also some good news as India’s BOP, CAD and CAB (current account balance) improved to some extent in Q4FY19 along with FX reserve, which now stands around $406.67B on March 1 (prior: $405.64). Indian banks are now also facing relatively lower slippages/NPL, although significant challenges remain for any meaningful recovery of corporate/personal NPA. And India’s CAD may drop below 2% of GDP in H2FY20. But India’s combined fiscal deficit may balloon in the coming days amid various populist election promises by all the political parties including BJP, INC and their regional peers at state levels.
There is also a visible slowdown in the Indian automobile sector after almost 2-years of the DEMO as Indian high-value consumption was basically a function of black money. Also, the cost of ownership of a vehicle for an average Indian is now very high compared to their average real earnings in this era of Ola & Uber (app cabs). Thus, we could see a fundamental shift in the Indian automobile (4-W) space in the coming days. The Indian monsoon may come below normal this year (as per signaled by the Indian private weather forecaster Skymet, a few days ago).
On Monday, the Indian market was helped by PSU banks (hopes of RBI rate cuts and mega-merger), automobiles (better-than-expected/mixed auto sales for March), techs/IT software exports, metals (China optimism), pharma/healthcare (defensive leverage as Nifty surged to almost lifetime), energies (higher oil) and infra, while dragged by private banks and financials (strong PSU banks after recaps may be negative for private banks), FMCG (below normal monsoon probability this time and subdued sales from rural areas), media and reality/real estates.
On Monday, Nifty was helped by RIL, Infy, L&T, TCS and Tata Motors; out of 45 points gain of Nifty, RIL contributed alone almost 24 points Nifty. But Nifty was also dragged by Axis Banks, Indusind Bank, IOL, HDFC Bank, and HDFC/ICICI bank. Private Banks dragged on the concern of lower NIM (net interest margin) as they have to pass the RBI cuts in the next 6-months (as per statement of the Indusind Bank CEO Sobti) and also have to comply with the new RBI norms like 25% maximum exposure to a single corporate borrower group, effective from 1st April, 2019.
Technical View (Nifty, Bank Nifty, USDINR): To be updated shortly
Technically, whatever may be the narrative Nifty Future (NF) has to sustain over 11575-11590* for a further rally to 11655*/11690-11750/11790 and 11830*/11895-11990/12090* and further 12230-12405 in the near term (under bullish case scenario).
On the flip side, sustaining below 11555, NF may fall to 11435/11380*-11330/11230* and 11120*/11045-10960/10900 and further 10820*/10780-10715/10595 in the near term (under bear case scenario).
Technically, Bank Nifty Future (BNF) has to sustain over 29975 for a further rally to 29995*/30240-30485/30830 and 30950/31275-31650/31950 and 32295-32550 in the near term (under bullish case scenario).
On the flip side, sustaining below 29925-29875, BNF may fall to 29750/29600-29400/29200* and 29000/28700-28400/28100-27830/27500 and 27350/27050-26700/26400 in the near term (under bear case scenario).
Technically, USDINR has to sustain over 68.25 for a rebound and further rally 68.60/68.95*-69.35/69.60 and 70.05/70.65-70.85*/71.55 and 71.90-72.05 in the near term (under bullish case scenario).
On the flip side, sustaining below 68.00, USDINR may further fall to 67.50*/67.00-66.60/66.25 and 66.00/65.30-64.50/64.00 in the near term (under bear case scenario).