Nifty may scale 24K by 2024 on big reform effort in Modi 3.0

India’s real GDP ($) has grown from around $1.61T in FY14 to an estimated $2.08T in FY24; i.e. an average rate of only around +3% in the last ten years

The Indian stock/financial market is now rejoicing India’s jump from fragile five to top/stable five in the last ten years under the superb leadership of PM Modi, in which India’s nominal GDP has grown from around $1.85T in FY14 to estimated $3.60T by FY24; i.e. an average nominal GDP growth rate of around +9.5% in the last ten years on an average against +0.5% (almost flat) during comparable FY: 12-13 under previous government led by INC/UPA-II/PM Singh. India’s nominal GDP has grown from around $0.7T in 2004 to $2.0T in 2014 at an average rate of around +18.5% per year.

INDIA’S NOMINAL GDP ($)

India is now the world’s fifth-largest economy in terms of nominal GDP, and sixth-largest economy in terms of real GDP ($). India’s real GDP (in terms of USD) has grown from around $1.61T in FY14 to an estimated $2.08T in FY24; i.e. an average CAGR rate of only around +2.9% in the last ten years under BJP/NDA/PM Modi. India’s real GDP in USD terms has grown from around $2.00T in FY19 to an estimated $2.08T in FY24; i.e. +4% in the last 5 years at an average CAGR of only +0.8% per year (under BJP/NDA-II/Modi-II) amid two years of COVID disruption.

In the last ten years (FY: 14-24) USDINR jumped almost +36%, while headline CPI surged almost +55%. India’s GDP deflator surged almost +51% in the last ten years (2014-24 under NDA), resulting in a huge anomaly/difference between nominal and real GDP. Economists are concerned only with real GDP, not inflationary/inflated nominal GDP. In advanced economies (AEs), like the US, EU, and China the difference between real and nominal GDP is moderate/small due to lower inflation/GDP deflator.

India’s GDP Deflator

India’s real GDP growth (in terms of USD) was around +7.5% on average during 2004-2014 under INC/UPA/PM Singh. But during UPA-II (2009-2014), India was seen as a ‘lost case’ in BRICS, among the fragile five, suffering from rampant corruption allegations, lack of strong political leadership, effort of remote controlling of the Gandhi family (proxy PMO) on official PMO (Singh),  political instability and policy paralysis amid allegation of various big scams involving vital economic policies (telecom 2G spectrum auction and coal/mining) and delay in passage of GST bill in the Parliament due to stern political opposition by the then main opposition party BJP. As a result, India’s nominal GDP was almost flat (+0.5% in terms of USD) during comparable FY: 12-13 under INC/UPA-II/PM Singh.

Although India’s nominal GDP may be now around $3.50T, at the 5^th largest position in the world, in terms of nominal GDP/Capita, India may be now still at the lowest in G20 simply because of its huge population. As per the UN estimate, India is now approaching a huge population of almost 1.50B by 2030, surpassing even China. India's population is expected to continue to increase until 2064 when it will peak at 1.7B. India's population is expected to grow by 15.5 million people each year. By 2030, India will have 1.04B people of working age (favorable demography, but needs quality employment). Modi admin may bring some structural reform aiming at quality employment generation and population control in the next term (targeted poor/middle-class people having more than 2 children may not be eligible for any government subsidy/scheme/job like in China).

India’s real GDP would be around $2.08T in FY24 against $1.99T in FY23 and $2T in FY19. Indian real GDP has been stuck around $2T for the last five years and grew only around 4.5% cumulatively due to almost 18.5% depreciation in INR against USD. In terms of real GDP ($), India is now the world’s 6^th largest economy, but far away from China’s $17.51T and the US's $20.18T simply for huge currency devaluation. If USDINR is now around 7.50 (at 1970 levels like China); India would be now around $21.34T economy (real GDP), the world’s largest, surpassing even U.S. and China. But India’s huge devaluation of currency also helped service export (like IT/Techs, tourism, etc) as well as merchandise export to some extent.

Despite there being a huge difference between India and China (democracy & autocracy), India needs to compete/follow the Chinese model in public infra (traditional/transportation/social) and agriculture with a feasible PPP model. India’s Modi admin is now trying to compete/copy some of the feasible China models in the creation of modern infra (both transport and social), manufacturing, and other sectors, so that by 2047; i.e. 100 years from 1947 independence from British Rule, India may be called as a developed nation, not developing.

India’s real GDP ($) has to grow around 10% CAGR for the next 25-years to become ‘Ram Rajya’:

India is now targeting to become a $30T economy (nominal GDP), 3^rd largest from the present $3.50T by 2047 mainly through infra stimulus, manufacturing, and servicing activities. For this Indian economy has to grow around 30% CAGR (nominal GDP) for the next 25 years. India has also a great potential/hub for travel & tourism, especially religious/spiritual tourism, attracting more than 2B tourists annually despite various infra deficiencies. India’s real GDP ($) has to grow around +10% CAGR with limited GDP deflator/inflation below 4% and currency devaluation so that the economy adds around $1T real GDP every 5 years. In this way, the real GDP ($) of India may reach around $7-10T by 2047-50, becoming the 3^rd largest in the world, but still far away from China, the U.S.

India now has a robust and improved tax collection system due to digitalization & effective implementation of GST, higher rates of GST (sales tax), high fuel tax, and reasonable/competitive personal and corporate/business tax rates coupled with improved collection/compliance system. Thus India is employing huge fiscal stimulus in creating infra, which is boosting GDP around 3 times, even after targeted social security grants (dole money), which is boosting GDP by 0.95 times (indirect boost to consumer spending). But going forward, India needs to employ much more infra stimulus (traditional infra/transport and social infra like quality free government schools, colleges, and hospitals like in the AEs).

India’s growing affluent middle class (20% of the population~300M) supported by government and big corporate employees (good salary earners), YouTubers, and the stock market /real estate boom is ensuring steady growth in consumer spending despite a huge 80% of the population still under poverty line amid growing income inequality. India’s 300M affluent middle-class people are equivalent to the US population of around 350M and the main driver of the Indian consumption story. But Indian average unemployment/under-employment is also huge and the government should publish real data regularly along with a robust plan to reduce huge unemployment, which is now structural. Indian government should provide RBI dual mandate of price stability and maximum inclusive employment to RBI (like the Fed).

Modi admin also believes that spending money through infra stimulus is far better than ‘helicopter money’ (direct/indirect subsidy/grants) as the former will boost GDP by almost three times against 0.95 times for the latter. Thus, since COVID-20, India has been spending huge in infra along with limited/targeted social security spending (direct/indirect grants) unlike many AEs (U.S./Europe). This infra-stimulus policy is in line with China’s policy.

India’s policy, macro, and currency stability is a rare case among comparable EMs (except China) and thus India enjoys a scarcity premium; FPIs are scrambling to buy quality Indian blue chip companies, that have good earnings growths, sustainable profitable business models, excellent corporate governance, impeccable management, and deleveraged balance sheet. Also, relatively higher USDINR is good for export-heavy Nifty as almost 60% of earnings come from exports led by RIL, INFY, TCS, etc.

Also, India’s banks & financials have enjoyed good/robust NIM/NII due to elevated bond yields and various government/regulatory policies including the effective implementation of IBC. Thus FPIs/DIIs/Angel Investors/HNIs/Retailers are all flocking to the Indian stock market, especially when it is almost certain that PM Modi/ruling BJP will win the mid-2024 general election convincingly. There is FOMO (fear of missing out) like sentiment among investors to board the Indian ‘growth bullet train’.

In his recent media interactions, PM Modi already hinted at big policy reform (backed by a huge political mandate) in his 3^rd term aiming for India to become a developed economy by 2047, boosting quality employment ensuring price stability and social safety (quality education and healthcare by government-free for all).

Note: Calculation of India’s real GDP in USD

There is some confusion regarding the calculation of India’s real GDP in USD or any other country in USD (except the US). World Bank (WB) calculates it in constant USD at 2015 prices, while the base year for the US is now changed from 2012 to 2017 (every 5-years).

As per WB calculation, using GDP deflator on nominal GDP ($) and constant USD at 2015 prices, the real GDP of India may be around $2.95T in 2022 against $1.49T in 2014.

But in reality, the real GDP in USD of any country should be the real GDP in local currency for the year, divided by an average exchange rate for the year. We have asked a generative AI this question and the answer is:

Nifty EPS may grow by around 20% in FY24 and by 15-20% on an average in FY: 25-30

India’s real GDP has grown around +9.04% in FY22, +7.24% in FY23, and is projected +7.3% in FY24. Indian real GDP is projected to grow by around 8.00-10.00% on an average in FY: 25-30, and Nifty EPS should also grow by around 15-20% CAGR (from the present trend rate of 10%). Nifty earnings growth may be boosted by possible RBI/Fed rate cuts (lower borrowing costs), another stable government led by PM Modi/BJP (policy stability), huge thrust on infra spending, possible GST/income tax rate cuts, lower oil prices, adequate pricing power by producers, increasing government spending and also private capex coupled with higher USDINR, positive for export heavy Nifty earnings.

At the present run rate, Nifty EPS may grow by around +20% in FY24 to INR 1030 against FY23 EPS of around 858 amid higher USDINR (positive for export-heavy Nifty earnings), robust performance by banks & financials (higher bond yield positive for higher NIM/NII), and vibrant domestic demand. The current TTM EPS of Nifty for Sep’23 QTR is around 938 and at 20 averages PE, the fair value of Nifty may be around 18760; Nifty made a recent low around 18837 in late October after the Israel-Hamas Gaza war broke out.

Now looking ahead Nifty may report a TTM EPS of around 985 and 1030 in Q3FY24 and Q4FY24, assuming an average sequential growth rate of around +5%, in line with the present trend. Thus at 20 average PE, the fair value of Nifty may be around 19700 and 20700 by Mar’24; further, assuming an average growth/CAGR of around +15% (against projected real GDP growth of around 8-10%), Nifty EPS may be around 1184-1362; and Nifty fair value may be around 23700-27250 by FY: 25-26.

As the financial market usually discounts EPS (earnings) at least one year ahead, Nifty may scale 23700-27250 by Dec’24/Mar’25 and Dec’25/Mar’26. But this journey may not be in a straight way and will happen in a zig-zag way in line with the underlying news/event.

Note: As of date (27^th Feb’24), TTM Nifty EPS is around Rs.958 against 985 projected for Dec’23 (Q3FY24) quarter.  We will know the final figure for Dec’23 QTR EPS only after 31^st March.

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future (Mar: 22046) now has to sustain over 21980 for any recovery towards 22200/22320-22400/22500* and further sustaining above 22500, may scale 22600/22675-22850/23025 and 23260-23575-23700 levels in the coming days/weeks; otherwise sustaining below 21950/21885, Nifty Future may further fall to 21735/21500*-21200/20990, and further 20850/20725-20575/20325 and 20195-19630 levels in the coming days.

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