Nifty jumped on hopes of 400 paar, lekin hoga kya 200 paar?

·         India 50 surged to a new life time high on hopes & hopes of Modi winning 400+ seats in the election; but will it be above 200+ this time?

India’s benchmark stock index, Nifty (India 50 CFD) closed around 22957.10 Friday after scaling a fresh life time high of 23026.40 on hopes & hypes of BJP/NDA winning in around 375/400+ LS seats this time and Modinomics optimism. Also, there was FNO expiry related short covering Thursday, and the rollover of fresh shorts by FIIs for June FNO expiry contracts may be responsible for the surge/volatility along with non-stop buying support by state-sponsored DIIs (especially LICI) to absorb huge FIIs selling in spot segment; FIIs are now actively selling and carrying huge short positions in index futures.

Most of the FIIs accounts are controlled by big Indian businesses/corporate houses/HNIs, routing/round tripping black/unaccounted money through attractive Indian stock market and maybe now funding Indian political parties (huge election spending around Rs.1.50T) by liquidating portfolio stocks, while DIIs are buying it; DIIs are also heavily funded by the same Indian business/corporates/HNIs.

The Indian market was also boosted by RBI’s mega-dividend of around Rs.2.11T to the government for FY24, which may help better fiscal discipline and higher government spending, although in reality, it may be another ‘Election/political jhumla (narrative)’ by the Modi admin aiming to improve the image of the government during difficult election times. Overall, RBI transferred divided to the government around Rs.0.87T in FY23, 0.30T in FY22, Rs.0.99T in FY21, Rs.0.57T in FY20 and Rs.1.76T in FY19. RBI transferred a comparatively lower amount in FY22-20 due to a lower CRB of 5.5%-6.00% amid COVID disruptions but now goes back to a higher CRB at 6.5% of RBI’s B/S in FY24 like in FY19 pre-COVID period.

Like any other major global central bank (Fed, ECB, etc), RBI is also one of the largest holders of government debt (bonds). RBI usually buys government bonds (GSECs) from DIIs (mainly banks, LICI, and other financial institutions) from the secondary market (mainly through QE/OMO operations) and thus also one of the largest beneficiaries of interest being paid by the government on its debts.

Similarly, RBI also receives a large amount of interest for its holding of foreign bonds (usually mostly US TSYs). In FY23, RBI earned around Rs.0.97T and Rs.0.44T as interest on Indian and Foreign bond holdings apart from some gains/losses in regular trading of those securities/bonds. RBI also earns a good amount in FX trading/intervention (mainly USDINR); in FY23 RBI earned around Rs.1.03T and Rs.0.69T in FY22 as exchange gain/loss from FX transactions. RBI may have transferred around Rs.1T more than the government budgeted for FY24. But this Rs1T may not change meaningfully India’s huge public debt (PDL) and fiscal discipline trajectory as the current public debt is now almost Rs.170T.

Indian market trajectory may be governed by the outcome of the Indian general election; i.e. politics rather than pure economics or even RBI in the near term:

On Thursday, the Indian market was also boosted by hopes & hypes of Modi 3.0 with a comfortable majority of 300+ seats (like in 2019), even if not 370+ or 400+ after a deluge of TV/YouTube interviews by some influential political analysts, usually seen as die-hard Modi fan. But such Modi savvy analysts are also predicting weak Modi 3.0 amid a strong anti-incumbent wave on the ground (higher cost of living and elevated unemployment/under-employment) and significant rural distress; almost 60% of the Indian population earns less than Rs.100 ($1.20) per day on an average.

As per even Modi's biased political/social analysts, although most of the people are not happy about their standard of living, they also do think that Modi as PM will only be able to solve their problem as there are no credible faces of an alternate PM in the opposition; Rahul Gandhi is still being seen as ‘Pappu’ (kid-not matured enough). But overall, Modi 3.0, or whoever may be the next PM, must be careful about growing social unrest among huge poor people and also educated youths for lack of good employment opportunities.

Now after 6th phase of poling (25th May) in India’s marathon election, most of the social media political journalists/analysts/psephologists (in the ground) are estimating around 200 seats for BJP and 25 for BJP allies, totaling 225 seats for NDA.

As par ABPS, which is seen as RSS/BJP savvy (front?), BJP may get around 231 seats and BJP+ may also win around 19 seats, totaling around 250 seats for NDA. But some influential political analysts are predicting 285 seats for NDA (250+35) and 350 seats for NDA (315+40) after 5th phase of polling.

Overall, this time Indian election outcome may be heading for a hung Parliament after 15/25 years of decisive/stable government. There may be various probabilities based on the actual number of seats won by BJP and INC (Cong) on 4th June:

·         BJP is projected to win from around 150-325 seats, but BJP may emerge as the single largest party with even around 192 seats against INC’s 133 median projections; a simple majority marks 273 seats

·         Modi may be the next PM only if BJP gets more than 275 seats; NDA will have around 300-325 seats; but it would be a weak Modi 3.0 due to widespread dissent within BJP/RSS for Modi’s alleged autocratic/arrogant nature along with a totalitarian behavior (as it seems sometimes)

·         BJP/RSS may have to replace Modi with Gadkari as the next projected PM if BJP gets below 275 seats, say around 250-200 seats

·         Gadkari is a moderate face, having good relations with almost all major/regional parties including some NDA and even some IND/opposition/NA allies like TMC, Shiv Sena (UT), SP, YSR, TDP and even INC/Cong; some IND/Opposition allies may also indirectly support Gadkari for his moderate face and no-vendetta politics rather than Modi; also RSS/majority part of BJP including UP CM Yogi and Leader Rajnath Singh will support Gadkari rather than Modi in such a hung Parliament scenario

·         Even disgruntled Marathi Shiv Sena Leader Uddhav Thackeray may eventually support another Marathi Leader Gadkari  as the next PM for ‘Marathi Pride’(Marathi Ashmita)

·         Although Modi is now trying to pacify/please various key opposition leaders (regional parties) like Thakaray, Patnaik (BJD-Odisha) and even Mamta Banerjee (Didi-TMC-WB), sensing hung Parliament or below 225 seats for BJP, it may be too late and too little, especially after the deluge of vendetta politics and controversial personal comments against those regional leaders; even some pre-poll BJP/NDA allies like TDP (Naidu-AP) or JDU (Nitish Kumar-Bihar) may not support Modi as next PM if BJP gets around 250 seats

·         If BJP gets around 250 seats, it may be very difficult for BJP to form the next government, projecting Modi as the next PM as in that scenario, BJP needs support from some present non-aligned (NA) parties like BJD (Odisha) and YSR (AP), totaling around 25 along with existing (pre-poll) NDA allies like JDU (Bihar-Nitish Kumar) and TDP (AP) totaling around 30 for a comfortable majority of 305 seats for NDA+NA (250+25+30); but TDP may not go along with YSR under this scenario

·         If BJP gets around 225-200 seats, then BJP, led by Gadkari as the next PM may also get the support of TMC (around 30 seats) along with Thakaray (around 20 seats)

·         On the other side, among various IND alliances, TMC (Mamta Didi) can’t be termed as a trusted partner of Cong because of history and the fact that Mamta Didi may not like Rahul Gandhi as the next PM; instead, Mamta may prefer Cong Leader Khagre as the next PM of IND alliance, who will be also a ‘Dalit’ face/PM (lower OBC cast)

·         Thus if INC/Cong gets around 135 seats, it may not project Rahul Gandhi as the next PM for risk of losing key support of TMC for any issue; if TMC withdraws 30 odd seats, IND may fall below 273 simple majority red line; thus Cong may project Khagre (Dalit/OBC face) or even Uddhav Thackeray as next PM (Marathi face) to stop BJP/Gadkari to form the next government

·         If Mamta Banerjee (Didi-TMC-WB) is ready to support Rahul Gandhi as the next PM candidate of the IND alliance (without ditching) after seeing BJP getting around 200 seats, then Rahul Gandhi should be the next PM (as he is the main opposition face against mighty Modi)

Conclusions:

Going by recent interviews and body language of Modi and Shah, it seems that BJP top brass is now also contending that 370/400 ‘paar; (above) was just a part of political slogan/strategy and they are now counting for 270/300 ‘paar’ (above); i.e. at least a simple/comfortable majority rather than blockbuster Modi 3.0. Modi-Shah/top BJP leaders and also various leading opposition leaders and big corporates/HNIs are getting various exit polls being done by various poll agencies almost daily/live, not available in the public domain. Modi-Shah nay be also getting live reports from various government (IB) agencies about the overall election trajectory, which may be indicating not good news for BJP/Modi this time amid the lack of any Modi wave (unlike in 2019 due to Balakot/POK surgical strike nationalistic issue) and a significant anti-incumbent wave coupled with the question of Modi style electoral autocracy.

Overall, it seems that India may be going for a hung Parliament this time with downside risk for BJP getting even below 200 seats rather than blockbuster/weak Modi 3.0 with a comfortable majority of even 350/300+ seats. There may be various political permutations & combinations to form the next alliance government led by either INC/Cong or BJP after the actual election outcome/result on 4th June. The Indian market is still discounting Modi 3.0 and hovering around record high levels.

If the exit poll on 1st June done by various polling organizations shows a hung Parliament this time, then Nifty may slump by 10% and another 10-20% (total 20-30%) by 4th June, if actual results indeed support the exit poll data. The market will recover after the formation of the next government either under the Cong or BJP in hopes of continuity and no sudden change of key policies as in reality, even the Cong should have a long-term vision for any policy change rather than any knee-jerk reaction. There may be some incremental changes in key policies over the longer term. Eventually, global/local markets/economy and corporations are controlling politics and economics, and politicians and corporations adjust each other for a middle way in such a situation. On the other side, if exit polls on 1st June show weak to strong Modi 3.0, supported by similar results on 4th June, then Nifty may jump 10+10% (total 20%) and then should correct in its natural way.

Bottom line: Summary

Days of one man one nation or even one party one nation politics may be over in India even after the increasingly fading probability of Modi 3.0. Modi will be over 75 years old by 2027, almost 2-years before the next general election in 2029; will have to retire from active electoral politics to join BJP’s so-called ‘Marg Darshan’ team (created by Modi himself to get rid of his colleagues/possible competitors). But nothing is impossible in electoral politics (by hook or cook). Thus assuming a higher probability of a hung Parliament and a lower probability of a comfortable Modi 3.0 this time, investors/traders may create an appropriate hedging strategy to protect/gain from the volatility.

Technical trading levels: India 50 Future/CFD

Whatever the narrative, technically India 50 Future (23015) now has to sustain over 23250 for any further rally to 23400/23525-23650/23850-24075 and even 25000-26000 levels in the coming days/weeks (if Modi indeed comes to power again with a comfortable majority of 300/350 or even 400+); otherwise sustaining below 23200/23150-23050/22850*, Nifty Future may fall again to 22600/22450-22350/22150 and 22000/21800*-21600*/21500 and further to 21175/21000*-20400/20000* and even 19700/19400-19200/18800 and even 18500*/17500-17300/15650 in the coming days (at least initially, under hung Parliament like scenario; if BJP/NDA indeed gets around 200 seats or INC/IND set to form the next government).