Nifty recovered on hopes of a continuation of Modinomics in Modi 3.0

·         But the market is also concerned about political & policy stability in Modi 3.0 amid the compulsion of India’s coalition political games of chess

India’s benchmark stock index, Nifty closed around 23264.00 Tuesday, after scaling a new life time high of 23409.50 on hopes of a continuation of Modinomics even under weak Modi 3.0. Overall, Nifty surged almost +3.23% in June and over +7% in 2024 (YTD) on hopes & hopes of Modi 3.0 after the ‘shocking’ setback of Indian PM Modi in the recent general election. Although Modi’s ‘400 Paar nara’ (400+ slogan) was merely a political narrative intended for the INDIA (IND) opposition coalition led by INC (Cong) to bat in back foot from the beginning, IND/INC leader Rahul Gandhi attacked the 400+ narrative of Modi with counter political narrative that Modi 3.0 will use this absolute majority to change the Constitution of India to scrap the legacy Reservation System for India’s backward caste (SC/ST) and OBC/Dalit community.

India has an age-old reservation system for backward caste, OBC community which ensures certain reservation quotas in all types of government jobs/education sectors/lawmakers in an effort for an inclusive society. Although, officially BJP is not against such reservations for vote politics, its parent organization RSS has some reservations, and some regional/prominent BJP leaders including Modi have also expressed some issues with the current system. Some small BJP leaders have also given some speeches that with 370/400+ LS seats, BJP will change the caste and Muslim reservation system in some states.

The opposition alliance IND/INC was very successful in their counter-narrative of Modi’s intention to change India’s Constitution/Caste Reservation system with an absolute majority (370/400+) in the Parliament. Although, after 1st phase of polling, realizing the 400+ strategy blunders, Modi has given over 80 scripted interviews to various TV/Digital media (known as Godi media-Modi savvy) in 8 weeks (which may be another world record by Modi) to clarify about his various controversial comments during election campaign speeches, the damage was already done.

This Constitution/Reservation issue along with widespread anti-incumbent wave over core economic issues like the higher cost of living (inflation), elevated unemployment, especially for youths and other socio-economic issues, and absence of any visible Modi wave (unlike in 2014 and 2019 election), BJP/RSS’s internal conflicts over Modi’s arrogance and dictator like attitude (with totalitarian behavior), choice of wrong BJP poll candidates in various sensitive constituency without consulting local/regional BJP/RSS leader and the eventual non-cooperation by BJP/RSS poll management teams/cadres on the ground on polling day has caused the unthinkable Modi debacle in the 2024 election.

The Indian market was gyrating in a small range during the last few months before the June exit poll/exact poll on hopes & hypes of a clear/stronger Modi 3.0, which may ensure not only political and policy stability but also various monumental/incremental economic/policy reforms so that India could be termed as a developed economy by 2047.

Now NDA has a slender majority on paper around 290 seats led by BJP’s 240 and formed the next government Modi 3.0 on 9th June. But practically Modi/NDA 3.0 may be in never-ending political uncertainty because of trust deficits among each other. NDA’s bigger allies like TDP (Chandra Babu Naidu-16 seats), JDU (Nitish Kumar-12 seats), and even Shiv Sena (Shindhe-7 seats) with around 35 seats altogether may also ditch Modi at any point of time for various issues. In that scenario, even if Modi gets the support of the rest 13 NA seats/members, it may be well short of 273 simple majority red marks. On the other side, present IND key ally TMC (WB-Didi-29 seats) may also switch sides to NDA/Gadkari/Rajnath Singh to support an alternative PM face of NDA like Gadkari and also to prevent Rahul Gandhi as the next IND PM. TMC/Didi is also trying to form a 3rd front government (non-Cong/INC and non-BJP) with around 200 seats!

Thus hypothetically/practically Modi, who never shared power and always acted like a decisive autocratic (elected dictator) leader/administrator (as PM or even CM), may now be vulnerable to the whims & fancies of various key NDA allies like JDU, TDP, SHS, etc as these allies are not natural allies; they are compulsive/contextual allies; i.e. they are forced to ditch their original/parent parties and joined BJP/NDA for the sake keeping themselves out of jail or in bail and to help Modi/BJP to consolidate power both at Federal and state government levels.

 

In brief, Modi 3.0 starts with some lame duck majority, Modi may become a lame duck PM rather than the usual decisive and autocratic leader; it remains to be seen, whether Modi will be able to cope with such drastic change in Modi 3.0. Also, Modi 3.0 has to face a formidable united opposition (IND) of around 240 MPs in the Parliament on various issues, and mainstream media as well as corporate houses may not extend the blind support that we have seen during Modi 1.0 and 2.0. Thus PM Modi may be preoccupied most of the time with political games of chess rather than the economy and other important issues in Modi 3.0 until gets a permanent simple majority in LS with some political permutation & combination (Operation Lotus).

In Modi 3.0, till now Modi/BJP/NDA has a total of 290 seats as per pre-poll alliance (NDA). Looking ahead, we may see various political permutations & combinations involving various regional parties, and even pre-poll NDA and IND alliances. In politics, there are no permanent friends and foes, but Modi may have closed all alternative options for his extensive use of money, PMLA muscle, and personal attacks. Also, most of the BJP and RSS leaders do not prefer Modi as the NDA PM for the next decade due to his arrogant nature with totalitarian behavior and rapid ‘Congress Jukta BJP’ rather than ‘Congress Mukta Bharat’! But most of the BJP/RSS leaders may now even seeking ‘Modi Mukta Bharat’ for his arrogant nature.

After forming Modi 3.0, PM Modi announced his cabinet on 10th June. The most important four ministers are PM Modi; Defence Minister: Rajnath Singh; Transport/Road: Gadkari and HM Shah (as per oath-taking serials). Gadkari is the new face, representing the RSS lobby in the new list of four top most important ministers (Cabinet Affairs-CCS). Modi kept all other ministers almost unchanged with Finance going to Sitharaman; Commerce to Goyal; External Affairs to Jaishankar and Railways to Vaishnav. The top three contending faces to replace Modi as the next PM may now be Nitin Gadkari (fully backed by RSS), Rajnath Singh (UP/Yogi lobby), and also Amis Shah (Gujrat lobby).

Modi 3.0 goes for continuity from Modi 2.0, which is a great relief for the market and also Indian economic sentiment as this may be the best solution for the time being amid a fractured election mandate and the resultant hung Parliament. But at the same time, some sections of the market may be also expecting Goyal as the next FM rather than Sitharaman because Goyal is a proven technocrat and sounds/looks more confident /smart. But Modi usually prefers ‘yes man’ ministers and also CMs of BJP-ruled states. In that sense, apart from Gadkari, almost all other ministers are very loyal to Modi.

Now after forming a loyal Modi 3.0 Cabinet of Ministers, Modi may focus on Speaker of LS selection as this is an important post to influence various political permutations & combinations that may be seen in the coming days. Modi may have to prove his majority on the floor of the Parliament (LS) in mandatory (?) six months; i.e. by Dec’24. Modi 3.0 key allies like TDP and JDU were reportedly seeking important ministries like Home (HM), and Finance (FM) to take control over various investigative agencies like ED/IT/CBI, etc which was previously used by Modi admin extensively to corner various opposition/regional political parties/leaders either to join BJP/NDA; i.e. either to get bail or face jail.

BJP allies and also all opposition parties fear ‘Operation Lotus’ (extensive use of money and PMLA muscle power) in the coming days so that BJP could have at least around 300+ or even 275+ loyal MPs by hijacking 35-50 MPs from other parries including allies or even oppositions. Key Modi 3.0 ally JDU also wanted a ‘lucrative’ Railways ministry. But Modi kept almost all key ministries in his/BJP control and so far ‘ailing’ Nitish Kumar is not in a condition for any public comment.

Some experienced Social Media journalists, who have known Kumar very closely for a long, are now also apprehending the status of the mental and physical health of Bihar CM Kumar after his recent body language while meeting Modi in the NDA meeting to extend ‘wholehearted support’ (without any pre-condition for the interest of Bihar).

Now the next focus will be on LS Speaker selection, which would be a key post considering it may influence likely BJP attempts of ‘Operation Lotus’ to break not only key allies or even opposition parties. Thus to keep safety, Modi 3.0 key ally TDP is now seeking the LS Speaker post. As per reports, Modi may agree to appoint Sister in Law of TDP Leader Naidu as the next LS Speaker, who is now serving as BJP Chief in AP and a long-time BJP leader of South India; i.e. loyal to Modi-Shah and also a close family member of Naidu.

This may be acceptable to Naidu as the best solution under the prevailing complex political situation as Naidu now desperately needs additional funds and a special AP package to save the almost bankrupt state, thanks to prevailing Dole money Politics not only be previous CM Jaganmohan (YSCP) admin but also the overall trend of Robinhood politics (vote bank targeted social welfare) across the country. Naidu also needs to close all types of criminal/corruption cases against him by Modi admin. Thus Naidu/TDP may not abandon Modi in a hurry until Modi ditched him and broke the TDP party/MPs.

The same may be applied to JDU leader Nitish Kumar as he also needs a special Bihar package & additional funds as well as an existing state CM post. Nitish Kumar needs an early state election to consolidate his power, but Modi may not oblige in a hurry (as a bargaining chip).

Thus looking ahead, Modi & Co may again launch ‘Operation Lotus’ to bring not only 10-15 non-aligned members of LS in BJP, but also another 15-30 of allies/opposition parties to have at least a simple majority of 273-300 seats of own for Modi 3.0 by Dec’24. But this time opposition/allies are also ready and alert to prevent that at any cost. Modi has now the top three ‘Chanaykas’ (political/poll strategists) in his core team: Shah and Patil in addition to Nadda; all have special expertise in ‘Operation Lotus’. But this time Modi-Shah may not launch ‘Operation Lotus’ on opponent BJP leaders (like Yogi of OP) before the 2024-25 election

By Dec’24, there will be state elections in Haryana (HR) and Maharashtra (MH) followed by Jharkhand (JH), Delhi (DL), and Bihar (BR) by mid-2025. As per current and overall political trends, BJP may lose badly in all these five state elections. But if the BJP can manage some surprise under the leadership of PM Modi, then he will be able to consolidate his position within his party (BJP/RSS) and may continue till 2026-27 (WB and UP election) or even full term 2029. But if Modi lost badly in the 2024-25 five state elections, then he may have no option but to take a graceful/face-saving early exit/retirement from active politics by Dec’25 on an aging clause in BJP.

In 2014, after getting the PM post by popular/election mandate, Modi introduced a 75-year mandatory retirement policy in the BJP from active electoral politics to consolidate his power within the party. As a result, many veteran leaders, who may pose some leadership challenges against Modi in the future were forcefully sidelined and became members of BJP’s dysfunctional think tank (so-called Marg Darshan). As a result, several senior BJP leaders like Advani, Murli Manohar Joshi, Yashwant Sinha, Sumitra Mahajan, and several MPs were asked not to contest any elections in the future.

This time, considering the overall RSS/BJP narrative which does not support Modi behind the scenes/camera, and also Modi & Co.’s body language indicates the Marg Darshan option for PM Modi to take early retirement by Dec’25 (if not by Dec’24 doe various reasons including loss of majority in the Parliament). By Sep’25, Modi will be turned 75 years of age, while RSS will also celebrate its 100 years. If Modi indeed took an early face-saving exit from active politics by 2025-27, then Gadkari or Rajnath Singh or even Shah may be in the race for the next PM post within BJP/NDA; Gadkari may be the preferred PM candidate by RSS Nagpur/MH business lobby.

India’s election battle mainly centers on India’s complex caste, religion (Hindu-Muslim), and freebies (Robinhood politics) issues rather than core economic issues such as elevated unemployment and inflation (high cost of living). Although opposition political parties always try to corner the incumbent ruling party on unemployment and inflation issues, neither the opposition nor ruling parties have any concrete feasible plan to resolve the same or even an intention to publish real-time/regular employment situation reports (data) like in any developed economy.

Unlike in developed democracies (US/EU/UK/Germany), India does not have a formal/informal (official/unofficial) TV debate between 2-3 major political leaders over core economic/non-economic issues and any concrete plan to resolve those. There are no debates over issues of huge deficit spending (debt) and ways to fund it in the future. India needs to multiply its infra spending to improve the supply capacity of the economy so that it can match the growing demand of 1.5B people and a growing middle class. India does not have a primary elections/debates system among various contesting political parties to choose the main contesting leader before an election.

Modi alone is now adding around 100-150 more seats to BJP’s normal seat share R/R of around 150 all over India over the last few decades. Modi is also bringing critical political funding by big corporations (Adani-Ambani) to the BJP and RSS. Thus even RSS top leadership (Nagpur lobby) will hesitate to take any harsh real action all of a sudden against Modi & Co (Gujrat lobby). Thus there is a need for gradual preparation by both sides in their interest to prepare the country and economy (stock market) for an eventual graceful/face-saving exit of Modi (Modexit) by 2025 or even by 2027-29.

Thus after Modi in 2029 and in the absence of any credible successor in BJP who can match Modi’s popularity and so-called trusted/godfather-like political leadership, BJP may again come down to around the normal 150 seats base across India along with Cong/INC’s equivalent 150 seats. In that scenario, almost 250 seats may be controlled by strong regional parties across various states of India.

So, coalition government/politics will be more prominent and the reality in the coming days/years in the absence of Modi a decisive autocratic leader. Also, BJP’s parent organization RSS does not want any person/leader’s image bigger than the party and thus is not backing Modi now actively due to his apparent arrogant and autocratic nature.

Conclusions:

The Indian market has enjoyed the ‘Modi’ premium for the last 10 years due to political and policy stability, although despite a brutal majority/huge political mandate, Modi was only able to bring incremental rather than monumental policy reforms on the economy and some other aspects. Also, the pace of PSU disinvestments has slowed significantly in recent years, while India desperately needs additional fund support for growing deficit spending, especially for traditional infra and social infra.

In the coming days, the ‘Modi’ premium for the Indian market may reduce due to political and policy uncertainty amid the compulsion of coalition politics (3N-factor-now Narendra Modi, Naidu, and Nitish) even under weak Modi 3.0. For example, Modi may face various demands from his two key allies TDP (Naidu-Andhra special status) and JDU (Nitish Kumar-Bihar special status) and these two leaders have old habits of frequent political flip-flops.

Even if Modi allows special status for these two bankrupt states (AP and BR), other semi-bankrupt/financially weak or even strong states will eventually seek the same status and more funds for themselves, which will eventually make India’s combined fiscal deficit worse for a high probable negative rating action by various global rating agencies amid growing political & policy uncertainty.

But if both BJP and Cong, two major political parties in India can maintain a cohesive/bipartisan economic policy (like Democrats and Republicans in the US) despite divergent political views/ideology, then India may continue to enjoy the ‘EM Scarcity’ premium and the appeal of 6Ds (development, demand, democracy, demography, deregulation and digitalization). Even 20% of the Indian middle class (around 300M) is equivalent to the whole US middle-class population, having significant discretionary consumer spending capacities.

Thus India is a big and lucrative market in the world, going for 3rd largest in the coming years irrespective of Modinomics, Gadkarinomics or even Gandhinomics. In his election speech, Rahul Gandhi called for GST reform with lower single tax rates or a maximum 15% tax rate for so called ‘sin products’. As revenue revenue-neutral strategy, India should apply a 15% or even 10% uniform GST rate across all products and services including petroleum products.

But India also needs out-of-the-box ideas or monumental reforms in various aspects (rather than a mere ‘human-political narrative) for a developed economy by 2047-50 or even by 2100. India also has to strengthen institutional autonomy in the judiciary, press, election commission, competition commission, etc along with political funding and electoral process reform. India (Federal Government) now pays almost 45% of core tax revenue as interest on public debt and 35% on account of government salaries and pensions. Indian Federal public debt & liabilities (PDL) is now around INR 170T, almost equivalent to the country’s real GDP. If we add individual PDL of various states, the combined PDL will be much higher than the real size of the economy.

Although most of the Indian PDL is in LCU (local currency units-INR), the cycle of higher deficits, debt devaluation and subsequent higher borrowing costs/higher inflation is making India a high-cost economy. This along with the lack of adequate employment opportunities for India’s huge pool of educated youths over the last few decades may create social unrest in the country, if not properly handled by the policymakers. Thus India needs to give RBI a dual mandate of maximum employment and price stability (like the US Fed).

Also, the Indian government may need a more personal tax collection system (like in the minimum payroll/social welfare taxes) along with non-strategic PSU disinvestments to fund modern social and traditional/transport infra in the country for ease of living. For this two main political parties (BJP and INC) should come into some bipartisan politics/economics supported by the corporate/business/ordinary public of the country.

India has now a natural economic growth of around 7-8% (real GDP) due to its large population and growing affluent middle class along with huge government spending and service/IT exports. But India needs to grow in double digits (at least 10%) in real terms keeping USDINR and core inflation at manageable levels for the next 15 years to be able to become a true $5T economy with inclusive growths, not exclusive and jobless growths like at present. India needs to put proper tax and policy structures in place to encourage domestic manufacturing of quality goods for export so that it can compete with China and other SE/SA exports, which will eventually create mass employment (like in China).

Bottom line:

India’s PM Modi may not be comfortable with coalition politics, falling popularity, and internal conflict within BJP/RSS over his arrogance and autocratic behavior. Thus if Modi can’t consolidate his power after a recent election setback, he may have no other option but to opt for a face-saving early exit from active electoral politics by 2025 on BJP’s 75-years retirement policy; in that scenario, RSS backed moderate Gadkari may be the next PM candidate for BJP and the original theme of so-called Modinomics (reform & perform) will continue, even may be in different form & style.

Technical trading levels: Nifty Future

Whatever the narrative, technically Nifty Future/ India 50 CFD (22350) now has to sustain over 22650 for any further rally to 22850/23050 and 23350* and  23400/23525-23650*/23850*-24075 and even 25000-26000 levels in the coming days/weeks (under strong Modi 3.0); otherwise sustaining below 22600/550-450/400, Nifty Future may again fall to 22300/22000 and 21800*/21700-21600*/21500 and further to 21150/21000*-20400/20000* and even 19700/19400-19200/18800 and even 18500*/17500-17300/15650 in the coming days (under weak Modi 3.0 or no Modi 3.0).