India may be heading for a hung Parliament; what about Nifty?

On Friday, India 50/Nifty Future (CFD) recovered from around 22530 to 22638 in line with Wall Street Futures on mixed US core PCE inflation report and upbeat/mixed earnings by big techs. But India’s benchmark Index Nifty snapped a 5-day winning streak during the Indian trading session to close around 22419.95. Overall, Nifty inched up only around +3% in 2024 (YTD) but still outperformed SPX-500, which slumped around -3%. The Indian market was primarily affected by the Iran-Israel ‘friendly war drill and another hawkish hold by RBI but was also boosted by mixed/upbeat report card and hopes & hypes of Modi-3.0 (a blockbuster win by India’s PM Modi for the 3rd term in the now ongoing general election.

But Nifty was almost flat for the last few weeks as there is growing election/political uncertainty amid no visible ‘Modi wave’ this time, especially since mid-March after the exposure of an electoral bond scam by the ruling BJP and also some opposition parties including INC, TMC, DMK, and some other regional parties having state power. There are also issues of democracy/autocracy, abolition of backward/caste reservation system, abolition/modification of the constitution, secularism and certain other political narratives going against BJP/Modi this time apart from ten years of the anti-incumbent wave under PM Modi (like growing unemployment/under-employment, higher inflation/cost of living etc).

Overall, under PM Modi (NDA), India’s 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, superb branding (marketing), and also 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. Modi may be the most influential Indian PM in the global geopolitical space due to his bold & definitive approach, philosophical talks, strong political leadership at home, and godfather-like image who hates corruption.

Under PM Modi, the PMO controlled everything even small policy decisions (central leadership), 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 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 rising 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/Gandhi wave’. Most of the voters are worried about the employment situation and the higher cost of living (inflation) crisis. Modi’s corruption-free 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 (investigative agencies) 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 the CAA (Citizenship Amendment Act).

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. India is now being portrayed by foreign/social media as an ‘electoral quash autocracy’ rather than the ‘mother of democracy’ under PM Modi.

As per recent trends and 1st and 2nd rounds of the election/voting, in which there was 5-10% lower polling in strong BJP seats/areas, BJP is now clearly on the back foot; Modi, and Shah all are looking less confident and scrambling for a scripted interview in the so-called ‘Gadi (lapdog) Media’ to clear public apprehensions over various issues including alleged hate speeches and certain other issues (never like before).

As per reports, similar to the 2004 election, BJP’s mother organization 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 in organizing the election in favor of Modi. As per various reports, BJP’s internal survey now shows around 235 LS seats for BJP alone due to the absence of any meaningful ‘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.

In the last few months/years, BJP (under Modi-Shah) has also taken various opposition/INC party leaders (tainted for corruption or not) and gave them election tickets or important party posts, ignoring BJP/RSS’ old party workers, which caused significant decent/internal conflict within the BJP/RSS and less active election machinery (cadre) on the ground. Even core BJP voters are also not reportedly turning out to cast their block votes in favor of Modi/BJP candidates.

Thus RSS Nagpur (HQ) lobby may have virtually abandoned ‘arrogant’ Modi; no longer prefers the Modi-Shah duo (Gujrat lobby) and may prefer trouble shooter Gadkari (Nagpur lobby supported by UP lobby CM Yogi) as the next PM for NDA, who has also very good/cordial relation 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 230-200 LS seats or even 273, it may need the support of various allies, and non-allies for a comfortable majority and thus soft-spoken liberal 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 still Modi-3.0, supported by other BJP allies and even some non-ally for next 5-years. After 2029, Modi will be aged around 80 and thus he may take ‘Sanyas’ (Retirement-Marg Darshan); Gadkari will be the next PM Candidate for BJP/NDA in the 2029 general election against more matured Rahul Gandhi of INC.

Overall as of now, 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. 2/3rd majority for bringing some political bills like UCC and one nation/one election (‘is bar 400 par’). But the situation may change if Modi/BJP gets a surprise seat from South India (most unlikely as of now) and there is a sudden geopolitical event with Pak/China at the border or some ‘terrorist event by Pak sponsored group’ and India launches another surgical strike against Pak sponsored terror groups (revival of ultra-nationalist sentiment in favor of ‘strongman’ PM Modi’).

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 100-150 seats this time alone from the present tally of around 50. But still, BJP will be the largest single party with 200-250 LS seats.

India’s TMC party (WB-Mamta Banerjee-Didi), who is presently with INDIA opposition block, may eventually be the next ‘Kingmaker’ with around 30 seats to extend support to BJP to ‘save the country from political and economic anarchy’ and also to prevent Rahul Gandhi to become the next PM. In this scenario, liberal Gadkari may be the best choice PM instead of ‘dictator’ Modi. Also, Odisha CM Naveen Patnaik (BJD) may support Modi/Gadkari/BJP/NDA this time with around 12-15 seats.

The WB CM Mamta Banerjee (TMC) or ‘Didi’ may not prefer ‘Modi’ this time due to various issues including selective usage of CBI/ED against her/party officials. But Didi may support RSS/Mohan Bhagwat's close aide Gadkari. Another alternative is, the INDIA opposition block selects previous CM (MH) Uddhav Thackeray as the next PM candidate for overall consensus (including TMC) if gets above 273 LS seats.

Thus overall result for the 2024 Indian general election and its impact on Nifty may be:

1.   Modi/BJP gets around 350-375 seats + 25-35 seats by NDA allies totaling 375-410 seats (2/3rd majority)-almost NIL probability (Next PM Modi)---Nifty will soar by 10-20%

2.   Modi/BJP gets around 275-300 seats + 25 seats by NDA allies totaling 300-325 seats (simple majority)-25% probability (Next PM Modi)---Nifty will jump by 5-10% (market almost discounted for Modi-III)

3.   Modi/BJP gets around 200-250 seats + 15 seats by NDA allies totaling 215-265 seats (just below simple majority)-50% probability (Next PM Modi/Gadkari with TMC+BJD support?)---Nifty may tumble by 5-10% as Modi/Gadkari will be dependent on Didi/other parties’ whims & fancies (political uncertainty) and a clear/stronger Modi-III was already discounted

4.   Modi/BJP gets around 175-200 seats + 5 seats by NDA allies totaling 180-205 seats (way below simple majority)-25% probability (no scope for Modi/Gadkari as the next PM)—Nifty will crash by 20-30% initially

5.   INC gets around 100-150 seats + 175-150 seats by India allies totaling 275-300 seats (just above simple majority)-25% probability (Next PM Gandhi/Thackeray)—Nifty will crash by 20-30% initially, but eventually may recover as there will be no major difference between actual economic performance under UPA/INC (2004-14) and BJP/NDA (2014-24); there may be no major policy difference between BJP/NDA and INC/UPA/INDIA

The Indian stock market is still not discounted at all 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 involving BJP, the arrest of Delhi CM Kejriwal and also Chhattisgarh CM Soren, the 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 1st time after DEMO, COVID 2nd wave, Modi, Shah and also other top BJP leadership are now looking/sounding less confident, scrambling for damage control speeches, which is causing more damage to Modi’s ‘liberal image’.

India’s Economic report card summary under UPA (FY: 2004-2014) and NDA (FY: 2014-24)

·         India’s Real GDP ($) at average USDINR grew from around $1.11T to $1.61T; +45.30% (R/R 4.53%) under UPA

·         India’s Real GDP ($) at average USDINR grew from around $1.61T to $2.09T; +29.47% (R/R 2.95%) under NDA

·         India’s Real GDP ($) grew at a faster run rate of +4.53% under UPA than the NDA run rate of +2.95%, but both eras may be termed as jobless growth as the unemployment rate remains unchanged at around 8% on average

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

·         As per World Bank data (2015 Constant International USD), India’s Real GDP grew from $1.01T to $1.95T under UPA; +93.07% (R/R +9.31%)

·         As per World Bank data (2015 Constant International USD), India’s Real GDP grew from $1.95T to $3.15T under NDA; +61.54% (R/R +6.15%)

·         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

·         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)

·         As per World Bank data, India’s Nominal GDP grew from $0.71T to $2.04T under UPA; +187.32% (R/R +18.73%)

·         As per World Bank data, India’s Nominal GDP grew from $2.04T to $3.54T under NDA; +73.53% (R/R +7.35%)

·         RBI Repo rate was around 4.25% to 8.50% under UPI amid 2008 GFC against 8% to 4% under NDA amid the 2020 COVID financial crisis; i.e. overall borrowing costs were higher during UPA than NDA on average due to higher inflation

·         India’s 10Y Bond Yield average was almost the same around 7.16% on average under both UPA and NDA

·         India’s Nifty gained around +273% under UPA and +233% under NDA

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

·         India remains at the lowest in terms of Real GDP/Capita in G20 under both UPA and NDA

·         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

Likley Policy Actions for the next 25-75 years to make India a truly developed economy by 2050-2100:

·         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; minimum average earnings of $1200/M

·         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 without any financial stress

·         Universal 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/caste/creed (25-60 years and then old age pension for all with rights to refuse by riches); no other social security scheme like ‘Laxmi Bhandar’ (freebees/dole money) at the expense of state/federal exchequer for promoting self-political interest

·         Federal/State/Local governments should have a dual response to ensure employment or to ensure at least a proper policy environment for employment opportunities in public and private sector

·         Official unemployment data by NSO (like NFP/BLS Establishment/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

·         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)

·         Proper political reform with a pragmatic political funding process (including crowdfunding and transparent corporate/government funding) to minimize corruption and quid-pro games

·         Stop the usage/leakage of fiscal stimulus money as a political donation/cut money for political parties/ and the overall system; Indian political, policy and economy should be cleaned up from corrupted money

·         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 (till 2100 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 (max 0.25% growth) for the next 75 years so that the supply (infra) capacity of the economy catches up with demand, resulting in a 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 or a scorching summer day)

·         Indian policymakers/political leaders should go above party politics to ensure a proper population control policy for a developed economy rather than narrow political interest of vote banks

·         India needs higher labor productivity, especially for PSU employees 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; to get a wage hike of around 5% every year in line with CPI/DA policy, labor productivity should also increase above 6% every year on an average; needs proper labor market reform along with other reforms to make India’s manufacturing sector globally competitive, especially to China (in terms of quality and quantity)

·         India’s manufacturing output is only around 13% of GDP against China’s 30%; India needs to encourage both big and small (MSME) manufacturing for mass employment like China and other SE Asian countries

Political angle:

·         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/Centre-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 at Federal, state, and also local levels (rather than meaningless political campaigns over caste/creed/religion etc);

·         A political party/leader must have a feasible plan to address various economic and other issues like growing unemployment/under-employment, elevated/hotter inflation, etc (rather than a simple narrative)

·         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 (146th in the world)

·         Despite being the currently 5th largest economy and prospective 3rd 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 $23T

·         Almost 85% of the Indian population is in poverty, earning below $8/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 of 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)

Conclusions:

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.

For higher revenue, the Indian Federal government should follow variable/fixed/minimum payroll taxes to cover social security expenses (free quality education, healthcare etc); the government should also abolish various tax deduction policies under savings schemes (like insurance) so that every citizen must contribute at least a minimum tax (MAT) for development of the country with fiscal prudence. Thus there is a huge opportunity for the ruling party/block to lift the Indian economy into development to develop by the next 25-50 years.

Also, India’s Nifty gained around +273% under UPA/INC/PM Singh, higher than +233% even under NDA/BJP/PM Modi as overall economic policies are controlled by the same set of bureaucrats/policymakers and industrialists/corporates (main funding organizations whoever may be in the power)-be it Modi/Gadkari/BJP/NDA or Rahul Gandhi/Thakaray/INC/INDIA alliance. India’s election will end on 1st June (Saturday) and there will be various exit polls in the evening. Accordingly, the market will react through India 50 CFD/SGX Nifty/Gift Nifty Future and on Monday's Indian NSE trading session (3rd June). The official count/result will be done on 4th June, Tuesday by noon IST, there will be a clear trend.

Technical trading levels: Nifty/India 50 Future

Whatever may be the narrative, technically Nifty/India 50 Future (22630) now has to sustain over 22750 for a further rally to 22850*/23025 and 23260-23575-23700 levels in the coming days/weeks; otherwise sustaining below 22700 Nifty Future may again fall to 22600/22400-22250/22100-21900/21800-21700*/21600 and 21325*/21250-21130/20850, and further 20700-20630/20460-20280/19730 and 19400 levels in the coming days.

 Bottom line:

If the initial election outcome indeed indicates a hung Parliament for India, then the Nifty may tumble by 20-30% and USDINR may soar 5-10% (despite active RBI and DII intervention). But this may be a wonderful opportunity to buy Indian blue chips at very cheap levels considering overall earnings trend/growths, sound business model, deleveraged balance sheet and impeccable management.