Nifty stumbled from a lifetime high dragged by HDFC Bank and RIL

Also, the diplomatic rift with Canada, fading hopes of an early election by Dec’23, and ONOE (one nation, one election) affected the Indian market

India’s benchmark stock index Nifty scaled a new lifetime high of 20222.45 last Friday (15^th September) on G20 and Modinomics optimism. Nifty surged almost +5% in the last three weeks (Aug 27-Sep 10) after consecutive days of winning streaks on Modinomics optimism amid the G20 summit in New Delhi, the capital of India. India’s Dalal Street surged despite subdued global cues amid hopes & hypes of Fed pause/pivot and Chinese slowdown. Apart from G20 optimism, the Indian market got a boost in early September as the Modi admin/ruling BJP is trying for ‘One Nation, One Election’ (ONOE) and may also go for an early general election by Dec’23 instead scheduled May-June’24 for various political, and economic/budget, and weather-related issues.

Although ONOE is very difficult to implement even if the BJP/Government can pass the same in LS/RS, the Modi admin may call for simultaneous general elections and state elections in those states, where Assembly elections are due in early 2024 and even late 2024 this time (like Mizoram, Chhattisgarh, MP, RJ, TL, AP, ANP, OD, Sikkim, Haryana, JHK and even Delhi). The market is expecting if such ONOE happens, then Modi/BJP may also be able to win in some of these states (Modi leadership appeal), where currently not in power. This will pave the way for more BJP-ruled states, more development/fiscal/infra stimulus, and other policy implementations. Although simply ONOE does not guarantee a clean BJP win in various states-there are various local/state issues involved, but it’s brightening BJP prospects.

Also, an early general election by Dec’23 (if happens), will pave the way for a full general budget by Feb’24 instead of an interim one; i.e. the December calendar of general election every five years will be positive for economic policies and implementations. In India, various state elections and general elections are also acting as a big fiscal/economic stimulus. Thus even a partial form of ONOE (in two phases state elections scheduled for CY25 may be held simultaneously at a time - by Dec’25 and so on) will also ensure policy stability.

But Nifty stumbled from Monday (18^th September) soon after the G20 meeting and institutional buying support ended and it became clear that the Modi admin called for the special session of Parliament not to go for legislation for ONOE and also an early election, but to appreciate India/Modi leadership over G20 and to pass various pending legislative bills including Women’s Reservation ahead of a general election scheduled in May-June’24. In any way, Modi admin may still call for an early election by Dec’23, so that the newly elected government led by PM Modi can present a full-fledged budget by Feb’24 instead of an interim one (vote on account). This will also correct the cycle for the next general elections and ensure simultaneous elections along with several big states.

Nifty was also dragged by index heavyweight HDFC bank and RIL. HDFC Bank stumbled on guidance warning after merger with HDFC. RIL slips after the imposition of a higher export tax on diesel/petrol in line with higher global crude oil prices (windfall tax). India’s Dalal Street was also dragged by the growing diplomatic rift between the Modi admin (India) with Canada (Trudeau Government) involving an assassination of an alleged Khalistan terrorist (Sikh-Canadian citizen) by RAW/Indian agencies in Canada.

Over the last few years, India has vigorously objected to the growing anti-India activities of some Punjabi communities not only in Canada but also in the U.K. and Australia. The market is concerned that present diplomatic tensions between India and Canada may cause some exits of Canadian FPIs/FDIs from India and may also affect Indian interest in Canada. Although Canada is a relatively very small economy compared to the U.S., EU, and China, and even smaller than India in terms of nominal/real GDP, due to its much lower population, Canadian GDP/Capita is quite high compared to India; Canada is a rich country and a part of G7/NATO. India is also a prime beneficiary of remittances from Canada-based Indians.

In this way, present Canadian PM Trudeau is set to lose the next general election due in Nov’25 amid various incumbent factors including high cost of living and other economic issues. The opposition Conservative leader Poilievre is set to win convincingly with a rare majority and is much friendlier with Indian PM Modi. In Canada, the local Sikh community plays an important role in elections and also in politics and policies (economy).

Indian PSU banks (PSBs) got some support amid the inclusion of Indian government bonds (GSECS) in the JPM (JP Morgan) global index EM fund, which may support such GSEC bond prices and PSBs HTM bond portfolio; generally PSBs are the largest holders of Indian government bonds apart from RBI. But Indian 10Y bond yield was not able to break below 7.00%, made a multi-week high around 7.23%; recent lifetime high +7.62% in June’22 after Russia-Ukraine war broke out and oil surged, but India is now buying oil from Russia with a deep discount of more than $20 from global prices.

Indian currency (INR) is also under pressure against the USD after a hawkish hold by the Fed and higher for longer policy; the Fed may go for another hike on 1^st November, forcing RBI for another +25 bps in December to manage USDINR and imported inflation, everything being equal. USDINR is now hovering around life lifetime high (83.30) amid growing policy divergence between the Fed and RBI, surging oil prices/import bills. But regular RBI intervention and upbeat service export (IT) along with growing product export led by refined oil/petro products and remittances are also supporting India’s BOP and INR.

Thus USDINR is also one of the best-performing currencies in the EM space, supporting Indian macros and FPI/FDI flows. In any way, USDINR may scale 85.50-86.25 if sustained over 83.50 by March ’24, ahead of India’s general election.

Although higher USDINR is negative for the overall Indian economy as it will cause more imported inflation, it’s positive for export heavy Nifty index as almost 60% of Nifty revenue/earnings comes from export, led by IT companies and petroleum products (RIL, Oil etc) along with pharma and automobiles, especially 2Ws.

Market wrap:

Nifty tumbled almost -2.57% for the week and closed around 19674.25 after rallying almost +5% in the prior three weeks, scaling a fresh lifetime high of 20222.45. India’s Dalal Street was dragged by realty, metals, private banks, pharma, infra, media, techs/IT, automobiles, energy, and FMCG, while boosted by only PSU Banks on hopes of higher bond prices after the inclusion of Indian bonds in JPM global index fund (EM). Nifty was dragged by HDFC Bank, RIL, ICICI Bank, Kotak Bank, Bharti Airtel, Ultra Cement, Infy, ITC, Tata Steel, JSW Steel, DRL, HCL Tech, Wipro, Tata Motors and Cipla, while supported by Adani Enterprises, Powergrid, L&T and HUL.

Bottom line:

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future (19674) now has to sustain over 19600-19575 levels for any recovery to 19850/900 and 20000/20275 levels; otherwise sustaining below 19540, may further fall to 19500/19450-19225/19100 and 18875/18525 levels.

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