*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 15^th 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 3^rd wave and
the normal target of the same might be around 9230-9275; in that
scenario, the corrective 4^th 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 2/3^rd 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*
<https://4.bp.blogspot.com/-XdsIAsEfWDg/WMbIELbTbmI/AAAAAAAAK4s/jNp256e3rMQWMbBFkrKVDh72XB2lnRRWwCLcB/s1600/SGX-NF-EW-MONTHLY-13-03-2017.png>
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Thanks & Regards,
Asis Ghosh
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