Nifty gained almost 30% in FY24 on positive global cues and Modi 3.0 boost; what’s next?

Depending on likely poll outcome and various scenarios, Nifty may scale 23500-24500 by FY25, while may also correct to 20300-19500 (if BJP fails to get min 273 seats alone)

India’s benchmark stock index Nifty closed around 22326.90 Thursday (28^th March), the last trading day of FY24, and surged 0.92% (+203 points) on positive global cues amid hopes & hypes of Chinese stimulus, Fed pivot, AI optimism, and QTR end portfolio rebalancing. Overall, Nifty gained around 1.57% for March, 2.75% for the QTR (Q4FY24/Q1CY24), and 30% for the FY24 (last 1-year) against SPX-500 performance of +10% for the QTR and +30% for the last one year. India’s iShare (India 50) ETF listed at NYSE/CME gained around 24% for the last year and 2% for the QTR. Nifty was muted for Q4FY24 as HDFC Bank dragged RIL boost.

Dalal Street underperformed Wall Street, EU/European market in Q1CY24 despite Modi-III optimism as RBI sounded more hawkish than Fed/ECB, not officially indicating any rate cut intention in H2CY24. Also, growing regulatory tightening on India’s banks/NBFCs, MF/Small/Mid-cap stocks, and flat/lower USDINR, negative for export-heavy Nifty earnings affected the Indian market to some extent.

For Q4FY24, Nifty, by RIL, ICICI Bank, Tata Motors, Bharti Airtel, SBIN, Sun Pharma, Maruti, LT, Bajaj Auto, ONGC, Adani Ports, Power Grid, M*M, Tata Steel and BPCL, while dragged by HDFC Bank, ITC, HUL, INFY, Asian Paint, Kotak Bank, Axis Bank, LTIM, Ultratech Cement, Hindalco, Divis Lab, UPL, Britannia, JSW Steel, and Indusind Bank.

For FY24, Dalal Street was boosted by realty, PSU Banks, Automobiles, Energy, infra, pharma, metals, techs, FMCG, private banks, and media stocks. For the last few days, Nifty was supported by a RIL boost amid an analyst upgrade; GS raised RIL target price from around IBR 2925 to 3400 against the current market price of around 3000; it made a life time high of around 3040 a few weeks ago.

For the last month, the Indian market was boosted by automobiles, metals, infra, banks & financials, and energy, while dragged by media, techs, realty, and pharma to some extent. Small caps tumbled amid SEBI regulatory tightening on small /mid-cap MFs. In the last week of February, Indian capital markets regulator SEBI advised mutual funds (MFs) to protect investor interest by limiting flows, rebalancing portfolios, and other measures, which prompted the selling n small/midcap stocks after an epic rally for the last few years.

BJP may not get a simple majority mark of 273 LS seats of its own in the forthcoming Parliament/General election:

The ruling BJP may lose around 30-40 or more LS seats in various states and BJP may not get 273 LS seats alone (simple majority) after the electoral bond scam, implementation of CAA, arrest of Delhi CM Kejriwal, Chhattisgarh CM (Ex) Soren, freezing of INC/Congress and various unfavorable incumbent wave amid real economic issues like sky high unemployment/under-employment especially for youth, consistent inflation-over +50% in the last 10-years and growing income inequality-almost 60% of Indian population earns around only $1/day on an average. Due to a lack of quality and sufficient universal free medicare and education facilities, many ordinary Indians are pushed into poverty because of unaffordable growing private healthcare and education costs; which is also affecting overall discretionary consumer spending.

Although government freebies (direct cash transfer) like Rs.1000-3000 ($12-36)/month to a certain section of the society (poor vote box) support discretionary consumer spending (informal economy) to some extent during Festival times, it’s also creating some wave of dissatisfaction among middle-class people as they remain deprived; poor people are getting freebies, while rich (big corporates/business house) are getting a subsidy. For a small household/family, one needs at least Rs.100K (around $1200) per month stable income (cash in hand) for a decent living, more than double 10 years ago.

There are also other issues of various political permutations/combinations over regional parties/allies and Hindu-Muslim votes etc. Modi came to power with huge public support in 2014 on anti-corruption, good governance, Hinduvta, and development platform; but most of the corruption issues alleged by Modi/BJP against the then Singh/INC/UPA government have proved wrong; there was no real scam over policy twist for 2G telecom spectrum and coal/mining/auction issues; but Indian economy/stock market got a jolt for such scam allegation and subsequent legal action by SC.

After India's electoral bond scam, Modi's anti-corruption/honest image has been tarnished severely as his party/government is involved in various quid-pro schemes (money for honey) with visible money trail. Moreover Modi's never-ending (too much) usage of ED/CBI/IT/NIA (investigative agencies) against various opposition leaders, arrest, bank account freeze etc, united opposition parties (INDIA) are now fighting Modi for vendetta politics and save democracy platform. Several EU nations including Germany, Sweden, and even the US/UN raised concern over India’s status as an ‘electoral democracy or rather than electoral quasi autocracy’.

Modi is now being seen as an autocrat/dictator and India is now being leveled as an electoral pseudo-autocracy rather than the so-called Mother of Democracy. Modi may be planning to impose various Draconian laws in his 3^rd term, including a bill against free press/digital/internet media, the 4^th pillar of any democracy; others are free & fair election mechanisms without the use of money & muscle power; free & credible judiciary and legislature/proper governance in a neutral manner-not politically biased.

For any change in India's constitution or such Draconian broadcasting bill, Modi needs 2/3^rd majority of the Parliament; i.e. at least 365 seats-thus Modi is now calling for 375 seats for BJP alone and at least 35+ seats by other NDA parties for 400+ seats in LS (Parliament)--but its' look tough at this stage and BJP/NDA may be struggling to get even 300+ seats this time. Modi/BJP is well aware of this through various internal/external assessments/surveys including investigative agencies/police/IB; as per BJP’s internal survey (not verified/authenticated), BJP may get around 215 LS seats of its own this time (2024) against 303 in 2019!

Thus, the BJP is now scrambling to take various opposition leaders in the party and become an increasingly Congress-heavy party rather than making India a Congress-free country. Moreover, BJP is now acting as a white washing machine (Modi detergent powder); taking various alleged scam-tainted opposition leaders into the party just to win seats/votes at any cost; this strategy is now backfiring, causing dissent in BJP’s core team.

Overall, Modi's popularity may be now saturating or even declining; he is looking/sounding more arrogant which is a sign of the end of his golden era. India's SC CJI is now against the Modi admin; SC may deliver various verdicts against Modi/BJP in the coming days including a huge scam involved in the Electoral bond and various issues over the EVM/VVPAT voting machine.

In brief, Modi may be in some type of trouble; but at the same time Rahul Gandhi/INC has to reshape himself in the coming years to face Modi, who has over 45 years of political experience; thus Modi/BJP has still comfortable lead along with various NDA allies to form the next government with around 300+ LS seats.

Nifty is now at a new life time high on hopes of an early RBI rate cut (from Oct’24) and Modinomics optimism. Indian PM Modi is set to return with a bang (?) for the next 5 years in the forthcoming April-June general election with an even higher or lower majority (?).

Overall, going by the present political narrative/scenario, and the lack of any credible face of opposition leader who can challenge Modi at all-India levels (despite hard work/walk by INC’s Rahul Gandhi), it’s almost certain that BJP is going to get 300+/- LS seats this time, if not 370-400+, the party is targeting this time.

But despite Modinomics optimism and the ‘guarantee’ of Modi-III; i.e. return to Federal government in the forthcoming general election with 300+ seats (if not 370) this time, Nifty is under stress on the electoral bond (EB) scam as it has tarnished PM Modi’s Godfather-like image of ‘honesty and crusader against corruption’. The EB scam is legalized political bribery involving Federal/state infra contracts and business favoritism (including policy twist) for hefty donations (quid pro scheme) made by various business houses/corporate entities, even many blue-chip Nifty companies, raising questions about corporate governance and accounting policy.

Corporations/business houses are not paying out of their pocket; they are paying against ‘business’, they are getting contracts, favors, and even favorable policy/rule twists, even that may be unethical for the general public. For example, various pharma companies investigating spurious drugs got scot-free after donating huge amounts to the BJP or various state governments and political parties where they operate.

Bharti Airtel/Mittal, which was previously not a very visible/vocal supporter of Modinomics, got a favorable policy twist (space/satellite internet spectrum) instead of huge donations; but it reportedly made RIL/JIO/Mukesh Ambani furious, which earlier seek a level playing policy. Similarly, India’s Kotak Bank got a favorable policy twist from RBI (regarding the appointment of a CEO) after making a hefty donation to the BJP and the list of such quid-pro (donations for business) goes on.

Overall, the reenergized INDIA opposition alliance led by INC/Cong and AAP is now trying to fight the ‘mighty’ Modi on a ‘save democracy’, anti-corruption (EB), and ‘secularism’ platform. After the EB scam/fiasco, it’s clear that the BJP is equally responsible for political corruption (quid pro). In this way, the INDIA opposition is now fighting the election on a ‘sympathy wave’ after AAP Chief and Delhi CM Kejriwal were arrested, the IT department froze all bank accounts of INC (allegation of no IT return for some old assessment year) and anti-minority (Muslim)/CAA act by the BJP just ahead of the election.

Now, on the eve of the election, BJP may be on the back foot to some extent on account of the wrong electoral strategy regarding the sudden arrest of the Delhi CM just before the election, freezing of INC bank accounts, implementation of CAA (subsequent NRC, etc), EB scam/fiasco, and appointments of two deputy election commissioners arbitrarily through a select committee comprising PM, HM/any cabinet colleague and LOP (Leader of Opposition), and not CJI as was the previous case.

Also, EB/CBI/IT/NIA and various other government investigating agencies are now on a war footing almost 24/7 in various states against prominent and even small-time opposition political leaders going against the BJP. This is creating a ‘sympathy wave’ in favor of opposition parties, but they have to also campaign diligently to snatch seats from the BJP.

Overall, India now needs a strong national-level opposition political party, having an all-India organization like INC, not state-wise regional parties to compete with the BJP at the national level. In a matured democracy, there should be always the visible presence of a strong opposition party (with common/bipartisan economic policies) for proper balance in all aspects.

Presently, the BJP is fighting various regional parties in state legislative polls, but making alliances/settings with them at the national level directly or indirectly to retain the Federal government and also ‘friendly’ state governments. Two strong/big national-level political parties like BJP and Cong/INC will ensure checks & balances at all levels.

In the 2019 general election, BJP/Modi won 303 LS seats alone out of 545 seats against the required simple majority of 273 seats (halfway mark); additionally, BJP regional allies in various states won 51 seats, making the overall tally 354 against 2/3^rd majority (around 67%) of 365 seats required to bring any big change in India’s constitution or any other big change. But BJP/Modi has effectively ‘managed’ the 2/3^rd majority in both LS and RS through indirect/direct support of various ‘friendly’ regional opposition parties (like TMC, BJD, etc) using various tactics including using ED as Extortion Directorate and the policy of so-called ‘political settings’.

Now in the forthcoming 2024 general election, PM Modi/BJP is publicly targeting 370 LS seats for BJP alone and 400+ for the overall NDA alliance; i.e. 2/3^rd majority for any likely change in India’s Constitution including one nation, one election; i.e. simultaneous Federal and State governments election every 10/15-years (?) or any big-bang reform (??) like population control, land & labor reform including suitable minimum wages across the country.

But for this, BJP/NDA has to win many more LS seats in WB/North-East and southern Indian states in a big way. On the contrary BJP/Modi may lose a few seats in those winning states as a result of some incumbent wave. All these may result in fewer LS seats for BJP/Modi/NDA in 2024. If BJP alone loses around 30 LS seats from its 2019 tally of 303, it will lose a simple majority in the LS on a standalone basis, which may result in more bargaining power for its allies under NDA. In the scenario of BJP/Modi failing to get a simple majority of 273 seats in the LS alone, the market may take it as negative and the 1^st sign that the 2029 general election will be tough for BJP/Modi.

As of now, the BJP is not able to capitalize on Modi's popularity in Southern States as INC and other regional parties are quite strong in terms of both money & muscle power to compete with the BJP. Also, in states like WB, Punjab, TN/Southern States, BJP has no significant booth-level party organization. The same is true for the BJP in other key swing states despite the Modi wave. Thus, despite immense public enthusiasm during PM Modi’s rally/roadshows in TS, BJP got only 8 seats and it may take more time & effort, the right strategy for BJP to win in these Muslim/OBC heavy swing states.

At around 22666 Nifty and TTM EPS 975, the current/TTM is now around 23 against mean/fair PE 20:

Nifty reported Q3FY24 TTM EPS around 975 against our previous estimate of 985; looking ahead, the FY24 EPS may come to around 1015 as per the present & projected trend, which would be around 18% growth from FY23 EPS l858.00; considering 15% growth (in line with projected nominal GDP growth), the Nifty EPS may come around 1167 in FY25. In that scenario, considering a fair PE of 20, the average fair value of Nifty may be around 23345 for FY25, 20300 for FY24 and 19500 for Dec’22 (as the financial market usually discounts 1Y projected/forward EPS in advance.

Bottom line:

Thus Nifty may scale 23350-24350 (if EPS grew +20%) or around 23500-24500 by Dec’24-Mar’25 under Modi-3.0. But before that, Nifty may also correct to around 20300-19500 if BJP indeed fails to get 273 LS seats (simple majority) alone.

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future-Apr (22488) now has to sustain over 22900 for a further rally to 23050*/23150-23250/23350 and 23575/23700-24000/24500 levels in the coming days/weeks; otherwise sustaining below 22850/22800 may fall to 22750/22600-22400/22240 and 22150/22000-21950*/21800 and further 21550*/21100-20950/20700-20550/19950-19850/19500 levels in the coming days/weeks (based on likely poll outcome data).

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