Nifty may come under stress on growing election uncertainty

Dow and Nifty Future recovered on Friday as Iran downplayed the Israel retaliation; India may be heading for a hung Parliament as BJP may not get over 250 seats alone

In the early Friday Asian session, SGX Nifty/Gift Nifty Future recovered from around 21625 Iran-Israel panic low and closed around 22200; Nifty 50 Future also multi-month made a low around 21814 Friday Indian trading session in NSE. Apart from negative global cues, India’s Nifty was also affected by growing election/political uncertainty amid no visible ‘Modi wave’ this time. Overall, under PM Modi (NDA), India’s overall economic report card (2014-24) is almost the same as UPA era (2014-24) Singh; but the NDA/Modi admin looks better because of strong political leadership, strong grip on PMO, which is the single power center despite RSS.

During the Modi/NDA era, whatever the policy decision by the PMO, it was executed with full strength and confidence, with PM Modi at the forefront. Under PM Modi, the PMO controlled everything even small policy decisions, while there were dual power centers under PM Singh (PMO + Gandhi family). This, along with false political corruption propaganda (about the so-called 2G  spectrum auction and miming scam) run by the then BJP & Co and subsequent SC action caused political & policy paralysis for UPA-II (PM Singh), especially in the last two years (2012-14), when India’s real GDP growth slows down in USD terms and India was being called ‘Fragile Five’.

From the ‘Fragile Five’ under UPA in 2014, the Indian economy is now under the ‘First/fastest Five’ under NDA/Modi. But like the failed ‘Shinning India’ election campaign during the previous BJP/NDA government under PM Vajpayee during the 2004 election, this time Modi/BJP’s ‘First Five’ campaign on development, targeted social security/service, anti-corruption and Hindutva platform may fail this time as the middle-class voters and younger population are now more worried about riding unemployment/under-employment and higher cost of living crisis.

Although there is no visible/meaningful ‘Modi wave’ this time unlike in 2014 (amid the anti-Cong wave) and 2019 (after the Pulwama incident), at the same time there is also not any meaningful ‘Rahul wave’. Most of the voters are worried about employment and the higher cost of living (inflation) crisis. Modi’s clean image is also heavily dented after the ‘Chanda for Dhanda’ electoral bond scheme (donation for business or donation after corruption) along with too much use of ED/CBI/IT against opposition political parties’ prominent leaders (political vendetta). This time BJP was also on the back foot after the decision about the sudden implementation of CAA.

Overall, with extensive use of corrupted money, PMLA muscle and various other pressures to topple opposition state governments and political parties along with huge pressure on media and even the judiciary, the opposition INDIA is fighting this election to save democracy and also the economy. As per recent trends and 1^st round of the election on 19^th April, in which there was 5-10% lower polling in strong BJP seats/areas (except WB), BJP is now clearly on the back foot; Modi, and Shah all are looking less confident and scrambling for a scripted interview to clear public apprehensions never like before.

As per reports, similar to the 2004 election, RSS is not in line with Modi’s ‘First Five’ campaign theme (like Sinning India) and may not be so active at ground/booth levels to organize the election in favor of Modi. As per some reports, BJP’s internal survey now shows around 235 LS seats for BJP alone due to the absence of any ‘Modi wave’ this time and non-cooperation by various state BJP leadership (RJ, MP, MH, Bihar and even KA) as Modi always prefers ‘puppet CM’, who will be never able to challenge his leadership and arrogance.

Thus RSS Nagpur (HQ) lobby now no longer prefers the Modi-Shah Gujrat lobby and may prefer trouble shooter Gadkari as the next PM for NDA, who has also very good relations with all BJP leadership at state levels as well as various BJP allies and even some opposition parties like TMC of WB. In case, the BJP gets around 230 LS seats or even 273, it may need the support of various allies, and non-allies for a comfortable majority and thus soft-spoken Gadkari may be the best choice. But at the same time, Modi’s approval rate (popularity) is still much higher than Rahul Gandhi and Gadkari and thus although BJP/Modi may win less than 273 LS seats of its own this time, we may see NDA-3, supported by other BJP allies and even some non-ally.

Overall, India may be going for a hung Parliament this time (at least initially) rather than a strong Modi government with over 370/400 LS seats; i.e. 2/3^rd majority for bringing some political bills like UCC and one nation/one election (‘is bar 400 par’). On the other side, INDIA, under Rahul Gandhi may not also get a sufficient number of LS seats for a simple majority of 273; INC may get around only 75-125 LS seats this time alone from the present tally of around 50.

The Indian stock market is still not fully discounted for this political uncertainty (hung Parliament), which was almost unbelievable a few weeks ago; probably BJP/Modi peaked the election campaign too early during late January at the time of the grand opening ceremony of Ayodhya Ram Mandir. The subsequent chain of events starting from an electoral bond scam, arrest of Delhi CM Kejriwal and also Chhattisgarh CM Soren, freezing of Congress bank accounts, and growing Western concern of India becoming an ‘electoral autocracy’ from the image of so-called ‘mother of democracy’, BJP is now clearly on the back foot and for the 1^st time after DEMO, COVID 2^nd wave, Modi, Shah and also other top BJP leadership are now looking/sounding less confident.

UPA: FY 04-2014 (10-years); NDA: FY 2014-24 (10-Years)

·         UPA-Real GDP (INR) from around Rs.50.78T to Rs.98.01T; +93.01% (R/R 9.30%)

·         NDA-Real GDP (INR) from around Rs98.01T to Rs.172.90T (EST); +76.41% (R/R 7.64%)

·         UPA-Avg USDINR from around 45.75 to 60.77; +32.83% (R/R 3.63%)

·         NDA-Avg USDINR from around 60.77 to 82.80; +36.25% (R/R 3.51%)

·         UPA-Real GDP ($) at average USDINR from around $1.11T to $1.61T; +45.30% (R/R 4.53%)

·         NDA-Real GDP ($) at average USDINR from around $1.61T to $2.09T; +29.47% (R/R 2.95%)

·         UPA-Nominal GDP (INR) grew from around Rs.63.32T to Rs. 112.33T; +77.40% (R/R7.74%)

·         NDA-Nominal GDP (INR) grew from around Rs.112.33T to Rs.293.90T; +161.64% (R/R 16.16%)

·         UPA-Nominal GDP ($) at average USDINR grew from around $1.38T to $1.85T; +33.55% (R/R 3.36%)

·         NDA-Nominal GDP ($) at average USDINR grew from around $1.85T to $3.55T; +92.03% (R/R 9.20%)

·         UPA-Population (UN EST) from 1136M to 1307M; +15.05% (R/R 1.51%)

·         NDA-Population from 1307M to 1442M; +10.33% (R/R 1.03%)

·         UPA- Real GDP/Capita $977 to $1234; +26.29% (R/R 2.63%)

·         NDA-Real GDP/Capita $1234 to $1448; +17.35% (R/R 1.74%)

·         UPA- Nominal GDP/Capita $1218 to $1414; +16.08% (R/R 1.61%)

·         NDA- Nominal GDP/Capita $1414 to $2462; +74.05% (R/R 7.40%)

·         UPA- CPI index (Inflation) grew from 63.35 to 114.20; +80.27% (R/R 8.03%)

·         NDA- CPI index (Inflation) grew from 114.20 to 185.50 +62.70% (R/R 6.27%)

·         UPA-GDP Deflator index from 58.10 to 114.60; +97.25% (R/R 9.72%)

·         NDA- GDP Deflator index from 114.60 to 172.60; +50.61% (R/R 5.06%)

·         UPA-Average core CPI NA; Average CPI +8.27%

·         NDA-Average core CPI +5.00%; Average CPI +4.85%

·         UPA-Average unemployment rate 8.32%; from 8.53 to 7.98%

·         NDA-Average unemployment rate 7.94%; from 7.98% to 7.48%

·         The UPA-Average Youth unemployment rate from 14.71% to 22.41%; i.e. grew +7.70%

·         The NDA-Average Youth unemployment rate from 22.41% to 24.50%; i.e. grew +2.09%

·         UPA-EMPLOYMENT/POPULATION ratio (15+ age): 50% to 49%

·         NDA-EMPLOYMENT/POPULATION ratio 49% to 47%

·         UPA-Labor Force Participation rate 63.70% to 52.50%

·         NDA-Labor Force Participation rate 52.50% to 49.90%

·         UPA-Poverty rate-UN/WB data (% of the population living under $5/day at 2015 constant price; around $8 at present rate): from 94.40% to 88.90%

·         NDA-Poverty rate-UN/WB data: from 88.90% to 85.00%

·         UPA-Poverty rate-NSO data: from 55.34% to 29.17%; i.e. fall by -26.17%

·         NDA-Poverty rate-NSO data: from 29.17% to 11.28%; i.e. fall by -17.89%

·         UPA-Minimum wage/day: from Rs.66.00 ($1.44) to Rs.137.00 ($2.25)

·         NDA-Minimum wage/day: from Rs.137.00 ($2.25) to Rs.178.00 ($2.15)

·         UPA-Minimum cost of living/month for a family of three (urban middle class)- generally 1100 (1000-1200) times of average USDINR or $ 1100 ($1000-1200) minimum/month: from Rs.50325 to Rs.66847; +32.83%

·         NDA-Minimum cost of living/month for a family of three (urban middle class): from Rs.66847 to Rs.91080; +36.25%

·         UPA-Federal Core Tax Revenue from Rs.2.25T to 8.16T; +5.91%

·         NDA-Federal Core Tax Revenue from Rs.8.16T to 23.24T; +15.08%

·         UPA-Interest on public debt from Rs.1.24T to 3.74T; +2.50%

·         NDA- Interest on public debt from Rs.3.74T to 10.55T; +2.50%

·         UPA-Total receipt (including disinvestments, RBI/PSU dividends, and repayment of loans/interest by states): from Rs.3.48T to 10.57T; +203.74%

·         NDA-Total receipt from Rs.10.57T to 27.55T; +160.64%

·         UPA-Interest/Core Tax Revenue: 66.31% to 45.83%

·         NDA-Interest/Core Tax Revenue: from 45.83% to 45.40%

·         UPA-Cumulative Public Debt & Liabilities (PDL) from Rs.17.24T to 55.87T: +224.07%; PDL(Debt)/Real GDP: from 33.95% to 57.00%

·         NDA- Cumulative Public Debt & Liabilities (PDL) from Rs.55.87T to 168.73T: +202%; PDL(Debt)/Real GDP: from 57.00% to 97.59%

Conclusions:

·         India’s real GDP grew at a faster rate (R/R +9.30%) under UPA than NDA (R/R +7.64%)

·         Overall inflation grew around +80.27% under UPA than NDA +62.70 (as per CPI index); average inflation was 8% vs 6% (UPA vs NDA) due to higher GDP growth, higher growth of population in UPA and better supply side management under NDA

·         RBI Repo rate was around 4.25% to 8.50% under UPI amid 2008 GFC against 8% to 4% under NDA amid 2020 COVID financial crisis

·         Unemployment rate/levels remain almost the same around 8.3% under UPA against NDA 7.9%; i.e. almost 8% on average for the last 20 years (as per unofficial data; no official government data)

·         Thus neither NDA nor UPA can claim absolute victory over unemployment/under-employment issues, while NDA may claim better performance over managing inflation, but also at the cost of lower real GDP growth

·         At present India’s Real GDP of around $2T is far lower than 2^nd largest China’s $18T

·         India needs double-digit real GDP growth in USD terms for the next 25 years with core inflation around 4% on a sustainable basis and a 5% average unemployment rate to be able to compete with China by 2050

·         India needs universal (free) quality healthcare and education for all citizens or even an affordable private/public PPP model so that the general public can afford quality education and healthcare

·         India needs unemployment benefits for all unemployed/under-employed persons at a minimum basis symbolic rate of $100/person/month (around Rs.100000/- per year)-irrespective of any reservation (15-60 years and then old age pension for all with rights to refuse by riches)

·         India needs official unemployment data (like NFP/BLS Household survey data in the US) every month and also retail sales along with appropriate CPI/core CPI data for a true economic picture of the country and subsequent planning/management;

·         India needs a US Fed-like dual mandate for RBI; i.e. to ensure 4% price stability with maximum inclusive employment (minimum 5% unemployment target for the long term)

·         India needs proper political reform with a pragmatic political funding process to minimize corruption and quid-pro games

·         India needs to stop the usage/leakage of fiscal stimulus money as a political donation/cut money for political parties/persons/various officers and the overall system

·         India needs reasonable political/election spending by extensive usage of digital techs rather than physical movements/huge rallies etc –such huge spending mostly from leakage/cut money from fiscal stimulus (projects/social security money, etc) is causing huge money printing and inflation

·         Presently Indian Federal government spends almost 45% of its core tax revenue as interest on huge public debt, which is not healthy and causing massive inflation; China/EU spends around 5.5%, while the US now pays around 15%; Japan now around 11%

·         India spends another 40% of core revenue on government salaries and pensions, leaving little left for infra and social infra development

·         India needs proper population control measures officially for the next 75 years (at least) in line with the previous Chinese model –no government job/subsidy who have more than one child)

·         Although the population growth rate has declined below 1% from over 2% a few decades ago, India needs proper population control for the next 75 years so that the supply (infra) capacity of the economy catches up with demand, resulting in lower cost of living and also ease of living

·         India has already a huge number of young educated persons, not finding proper jobs and becoming unemptied/under-employed; we can see a huge turnover in the number of job applicants for any government job even basic ones

·         India’s levels of unemployment/under-employment are evident when we can see a huge turnover in any political rally of any popular political leader (even in the middle of the working day)

·         India needs higher labor productivity so that the overall economy’s productivity improves, which is the ultimate;

·         At present, India’s wage hikes for regular employees, especially government/public employees are much higher than their productivity, which is causing a wage-inflation spiral

·         PM Modi is no doubt a great political leader with over 45 years of experience, but he is not a great expert on the economy like PM Singh (UPA)

·         India needs two strong political parties (BJP-center-right and INC-Centre Left) at the Federal level along with some regional/left parties at state levels for proper balance & check in all respects for a matured Democracy (mother of democracy ensuring free/independent judicial/investigation agencies along with freedom of/after speech like in the US)

·         ECI needs to ensure proper TV debate about economic and other vital issues among main political leaders like in the U.S./other AEs during election times

·         India’s public/government spending on universal education and healthcare is one of the lowest (absolute and % of GDP) in the world and GDP/CAPITA is the lowest in G20 (146^th in the world)

·         Despite being the currently 5^th largest economy and prospective 3^rd largest economy in the world by 2030 in terms of a nominal GDP target of $5T, India’s real GDP, currently around $2T is much smaller than China’s $18T, and US’s $22T

·         Almost 85% of the Indian population is in poverty, earning below $10/DAY against China’s 25% and the US’s 2%; we need to fix this huge income inequality and poverty through proper policies including minimum private sector wage at least $10/hour in line with government employees (MPs earn around Rs.2.5L cash+2.5L perks~5L/month and 1L lifelong pension for doing nothing for most of the cases)

Thus, whoever may form the next government (NDA/INDIA), policymakers need to go for the box idea to make India a developed economy by 2050; for this India needs to invest much more in traditional infra/railways, and also social infra (government schools/colleges/hospitals) to meet growing demand for the huge population. The government may need to go back to the disinvestment policy boldly and gradually sell stakes in PSUs (except strategic ones) without compromising national security issues over the next 10 years.

The market capitalization of PSUs was around Rs.50T in Jan’24 and the government may target at least 10% stake sale each year to fund the huge infra requirement without taking additional loans. India’s public debt will soon surpass real GDP and the government is already paying around 45% of core tax revenue for interest alone. Thus there is no meaningful space for additional loans and the government has to find an alternative way to fund this without additional loan/money printing and taking external FX loans. Also, additional government loan/money printing may result in higher inflation and devaluation of INR.

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future (22126) now has to sustain over 22400 for further recovery to 22500/22700-22850*/23025 and 23260-23575-23700 levels in the coming days/weeks; otherwise sustaining below 22350, Nifty Future may further fall to 21950/21800-21700*/21500 and 21325*/21250-21130/20850, and further 20700-20630/20460-20280/19730 and 19400 levels in the coming days.

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