Nifty Trajectory After NAMO's Big Win In UP:
Part-II (13/03/2017; 20:00)
Indian
market may also focus on the global issues later in the day tomorrow after
initial euphoria of the NAMO victory wanes out. There will be several
geo-political & central banks events this week such as invocation of
Article-50 by UK, paving the way for Brexit (??) or more uncertainty, proposed
referendum announcement by Scotland, BOJ meet, Fed rate hike (??), election in
Denmark (EU geo-political tensions), US budget etc and each of these events can
also affect the market in either way significantly.
Although,
Fed rate hike is now may be a virtual reality on 15th March, but
considering Trump’s own apathy for a stronger USD, Yellen may take the excuse
of the tepid wage growth in NFP and thus may be on the “Hawkish Hold” this time;
i.e. Fed may not hike day after tomorrow and may also hike only once against
its earlier projection of thrice in 2017.
A
no-rate hike from Fed, a no-invocation of the Article-50 by UK this week
coupled with thumping win for NAMO in UP may cause Nifty Fut-I to rally towards
9275-9550 by next week , where we can see good profit booking or long unwinding
& fresh shorts.
On
the other side, if Fed hikes & make further hawkish telegrams, UK indeed
invoked Article-50, paving the way for a real Brexit, then Nifty may correct
from around 9275 area itself.
Technically, in the
monthly EW setup, NF may be in the 3rd wave and the normal target of
the same might be around 9230-9275; in that scenario, the corrective 4th
wave target may be around 8400-8150; if sustained below 8995 for few days;
otherwise, NF may further rally towards 10100 & 11350-11550 and further
13550 by FY-17 & 18.
The
thumping win of NAMO in UP may have also ensured his/BJP’s prospect in 2019
general election and until 2024, India will be on safe hands of NAMO/BJP in a
virtual monopoly, provided there will be no major scam or any other
geo-political issues. Market/investors like political stability and policy
predictability and thus, market will certainly cheer the NAMO win for the next
few days, although it will not cause any earning upgrade instantly; Govt’s
future economic & reform policy may create an appropriate platform, where
corporates can perform better with an overall improvement of the Indian
economy.
The
unexpected level of success of BJP in UP & other states may be due to the
fact that SP (Akhilesh) & RAGA might be “overconfident” for the “DeMo blues”
factor. Also, SP has done a political suicide much before the election itself
by its “family dispute/drama”. On the other side, NAMO was successfully able to
read his audience (voters) much before the election and by DeMo and his
surgical strike & follow up action on the “corruption & black money” of
the “rich people” for the “benefit” of the “poor people” stance has made him
“friends & well wisher” of the later.
“Poor
people” has voted for NAMO wholeheartedly in support of his “war” against “rich
people” and thus this state elections, especially in UP was fought mainly on
the “Rich & Poor” class rather than any other traditional religion or caste
or even on development basis. “Poor people” in India is also comprised of
middle class high earners. Thus, the movement of DeMo by NAMO may be termed as
a “Political Masterstroke” rather than a “Political Suicide” and it’s not T-20
game of cricket, but may be a long test match.
NAMO
knows the “pulse of the nation” very well and by his action of “surgical strike”
on the Pak-LOC & DeMo, he was successful in creating a “nationalistic wave”,
which has helped NAMO an undisputed political leader of India. Also the
perception of “Modinomics” (better economics or development for the poor) has
helped a lot in the election.
To
be frankly speaking, although RAGA has worked overtime, he has little political
maturity of NAMO & has failed to read the “pulse of the nation” properly
and may have also turned himself as a “Political entertainer” in the process.
In Punjab, INC has won may be because of the anti-incumbent factor of ten years
of BJP/NDA rule and the leadership appeal of its Punjab leader Capt. Singh
despite some allegations of corruptions against him.
It’s
clear that most of the Indian voters are now with either a credible regional or
a national political leader irrespective of any major political parties at
regional or national level. RAGA has no such credibility as of now, but may
have some potential for the future; Akhilesh & SP has lost all their
credibility even before the election for the family disputes, despite
significant development work in the UP under their tenure; family dynasties may
be some of the other factors which worked against both RAGA & SP in this election
apart from the DeMo factor. The “family disputes/drama” of the Yadav family
(SP) may be also a by-product of BJP’s (Amit Shah) UP election strategy (thanks
to Amar Singh also); but all is fair in love & political war.
Now,
after thumping win in UP, BJP/NAMO has virtually no political opponent in the
foreseeable future. But, even after this win, BJP may not be able to garner the
much elusive RS majority immediately as most of the RS seats under BJP’s states
will not be vacant for re-election until 2018-19. Even for the Presidential
candidate after July’17, BJP has to depend upon some of the Non-UPA opposition
parties, like BJDU (Odisha) or AIDMK (TN) for its candidate to become the next
Indian President.
In
the next big state election, BJP is also expected to win by a major margin in
MP, GJ & even in KA (now under INC); but all the benefits of RS seats will
be only visible after 2019 general election. So, after 2019, BJP/NAMO is
expected to have 2/3rd majority or above in both the upper house
(RS) and the lower house (LS) of the Parliament and after 2019, there should
not be any excuse by the Govt/BJP for any RS obstruction of any reform bill
like GST.
But,
after the current political debacle, INC or any other regional political
parties may not object to any reform bill either in RS or even in LS. In fact,
INC has co-operated in passage of every important bill, like IRDA /Insurance
bill and also the draft amendment bill of GST in RS.
Thus
the onus of faster passage & actual implementation of bill like GST and
also other vital reform bills like Land & Labour, FDI in multi brand retail
may be on the Govt/BJP now rather than the non-existent oppositions. Thus,
market will look into the actual implementation of the vital reform bills like
GST at the earliest (July-Sep’17) in correct format with minimum regulations
without any excuses from the Govt.
Expectations
for a big-bang reform from the Govt will be now extremely high for the
investors, rating agencies and other market participants and although, Govt/BJP
is not favour of any big-bang reform, but of incremental small reforms, market
may be also disappointed, if it found any lethargy on the part of the Govt to
implement the same because this is a “golden era” for the BJP or any Indian
Govt having so much political supports.
One
such litmus test will be the implementation of GST from July-Sep’17 as it now
seems that the final passage of the same is just a formality and matter of few
weeks; opposition/INC will not object to anything about it seriously and will
also not try to block it and earned the reputation of a “disrupter” rather than
a “moderator” amid poor political positions. In the past, BJP under leadership
has objected to the GST bill by INC for ten years on questions of some state
related issues and now INC is objecting the same (proposed by the BJP) for the
last few years in this GST game of ping-poing.
It
will be very interesting to see now, if Govt/BJP is really serious to implement
the GST from July-Sep’17 as it may cause another disruptions like DeMo as the
small business community or vast traders of the nation is not at all prepared.
Even
if the GST is implemented in a hurry from July-Sep’17 in its current form with
so many complexities, multiple rates of taxes and regulations, it may be a far
cry from the concept of “one tax one nation” and may also not help
significantly in any way to the GDP of the country and the earnings of the
corporates/SMES.
For
improvements in earnings of the corporates, Govt need to revive the
demand/consumption, private investments, and adequate credit flows at
reasonable rate to qualified or quality borrowers. For revival of
demand/consumption, Indian economy needs to generate quality jobs having decent
earning potential for its vast unemployed youth & middle class families.
Only then discretionary spending will improve resulting in a better consumption
or steady demand.
Thus,
expectation from the Govt for an effective economic & social reform may
have increased multifold and any disappointment from there may also disappoint
the market in the coming days. Apart from primary issues of better education
& health care system under Govt umbrella (as in developed economics), Govt
also need to deliver may other policy reforms without being so much obsessed
about GST.
Govt
first need to ensure that its policy makers and also the financial market do
have access of correct economic data of various natures like retail sales,
unemployment, housing etc apart from CPI, GDP, IIP. High frequency economic
data in correct format is essential for an economy to be assessed properly.
Govt can also use the UID Card (Aadhaar) for the purpose of economic data
collection as it has now more than 95% penetration.
Also,
Govt may have done some other structural reforms like giving permission for
Private Railways like in Private Airlines, where Indian Railways may be separated
into a railway operator and the regulator like AAI in airlines, proving the
entire necessary infrastructure supports of the railways & earning by
imposing a fee on its services. As a railway operator, Indian Railway has to
compete with other private railway operators and only then the overall service
& quality of the railways can be improved. There will be also vast
potential of employment with the private railways. As par some market buzz,
Govt was supposed to propose this reform of private railway operators in this
FY-18 budget, but for reasons unknown, Govt has not taken any step in this
direction, except some proposed market listings of its various profitable
railway subsidiaries (like IRCTC etc). Govt has to deliver some bold &
effective structural reforms now as there are huge political supports for it
among the ordinary public of the nation.
There
may be also some risks for the market as Govt/BJP is now enjoying virtual
monopoly without any meaningful opposition political parties. We may see more “out
of box ideas” like DeMo, “surgical strike on black money & also on LOC”,
some capital market tax reform (for the contribution of the development of the
nation), action against P-Notes as it’s may be the ultimate place for Indian
high profile black money routing & round tripping through the FII/Foreign
routes. This may be the right time for such reforms as there is now little
apprehension and market is also at life time high.
Thus,
there may be some policy unpredictability & out of box ideas from NAMO as
well in the coming days for the betterment of the nation and market can also get
a rude shock.
Analytical Charts: SGX-NF
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