Nifty soared on hopes of a blockbuster budget but stumbled

·         After the budget, the focus may be on state elections; if Modi loses badly, then he may have to exit gracefully by Dec’25 on the 75-yrs age retirement policy in the BJP

India’s benchmark stock index, Nifty closed around 24530.70 Friday, stumbled almost -1.09% on negative global cues amid fading hopes of an imminent Fed/RBI rate cut in Sep/Oct’24 and a slump in Wall Street techs on the concern of a probable US restriction on China for AI chip and other Hitech areas. Wall Street Futures were also under stress on the global outage of Microsoft OS apps/online system as a result of some update bugs in system security software CrowdStrike, affecting banks airlines, trains, and even some stock exchanges. There were also some disruptions in the India-airlines sector.

Also ahead of the Federal budget (FY25) presentation on 23rd July, India’s Dalal Street may have gone to the back foot after a phenomenal rally in the last few weeks since the declaration of the election result on 4th July. Overall, Nifty surged almost +9% in the last two months (June to July-till date) and +17% from the exact poll panic low of 21281.45 on 4th June to a recent life time high of 24853.80 made on 19th July. India’s Dalal Street (Nifty 50) gained almost +13% in 2024 (YTD) against Wall Street (DJ-30) +7%; for 1Y, Nifty gained +24% against DJ-30’ +14%; for 3-years, Nifty gained +57% against Dow Jones’ +16%.

India’s Dalal Street has not only outperformed America’s Wall Street in the short term but also in the mid & long term and remains one of the best-performing markets in the comparable AE/DE spectrum due to Modi magic, stable macro, stable currency, political & policy stability (attraction of Modinomics and 6D-development, demand, demography, deregulation, digitalization, and democracy). Also, India’s (Nifty) corporate earnings improved in the last few years (despite higher borrowing costs) due to various reasons including higher USDINR (+12% in the last 3 years), corporate tax cuts (fiscal stimulus) and adequate pricing power.

India’s Nifty EPS is heavily dependent on exports (tech/IT service and refined petroleum) and also banks & financials. Thus higher/elevated USDINR helped India’s exporters along with tech/AI optimism and the Russia-Ukraine war; Indian refineries like RIL, and ONGC imported/bought ‘sanctioned’ Russian oil at heavy discount (cheap) and earned a windfall profit by selling (exporting) the same (refined petroleum products-mainly gasoline/petrol & diesel) in the EU/Europe at elevated prices (as EU/Europe was unable to buy Russian oil directly due to NATO/G7 sanction).

India’s Nifty was mainly boosted by RIL, ONGC (oil refineries), IT software exports/techs (INFY, TCS), banks & Financials (ICICI, HDFC, Axis, SBIN), and also vehicle and pharma producers (domestic + exporters-M&M, Hero Motors; Sun Pharma, DRL, Cipla). Banks & Financials have reported robust earnings due to elevated borrowing cost/higher bond yield (curve steepening)-positive for their business/lending model (higher NIM). Also, the Adani group of stocks helped due to improved earnings (infra and FMCG space) and their proximity to Modi/BJP; apart from some media/internet/communication stocks/sectors, almost all other major sectors were in deep to moderate green.

Nifty is now trading around 24500 levels with TTM EPS (FY24) around 1051 and a decent PE around 23; looking ahead assuming an average CAGR of 15% in EPS (against 7.5% real GDP growths on an average and 14% in the last two years ) and 20 fair PE, the fair valuation of Nifty may be around 24200 by Dec’24; 27850 by Dec’25 and 32030 by Dec’26; i.e. Nifty is now trading around projected fair value of FY25 assuming EPS around 1209 (~15% growth from FY24 levels; although it may be +20% growth if RBI cuts rate early; but that may not be the case as RBI may start cutting rates in line with Fed from Dec’24 or even Feb’25).

Also, index heavyweight RIL and ONGC may report lower profits in the coming years if there is a ceasefire in the Russia-Ukraine and Gaza war under a highly probable Trump Presidency in early 2025, which may lead to the normalization of Russian/oil sanctions. And Fed/RBI will be on a cut path from early 2025 and there will be bond yield curve inversion/lower bond yields/lower interest, which should be negative for earnings for banks & financials.

Overall, for the last 3 months, in terms of index points, Nifty was boosted by INFY and ICICI Bank. Axis Bank, HDFC Hank, RIL, M&M, SBIN, TCS, Bharti Airtel, ITC, HUL, Powergrid, Ultra Cement, Grasim, ONGC, and TECHM, while dragged by Titan, Bajaj Finance, Tata Steel, Indusind Bank, Maruti and Adani Enterprise. RIL was also boosted by JIO/telecom optimism amid rate hikes and the buzz of JIO listing/IPO. India’s election boost may have also boosted M&M and Hero Motors (high demand for SUVs and bikes during election campaigns/rallies). India’s economic activities may have also got an additional boost in H1CY24 due to not only an election spending boost (almost Rs.1.50T) but also a lavish wedding ceremony/3-months festival for over Rs.50B, equivalent to R-JIO’s QTR profit.

For the last two weeks, Nifty was boosted by INFY, TCS (upbeat report card), ITC, HUL, (upbeat FMCG sales), ONGC, SBIN, ICICI Bank, and Bharti Airtel, while dragged by HDFC Bank (RBI regulatory move to normalize credit/deposit ratio), RIL, Tata Steel, JSW Steel, Hindalco (lower metal prices globally) and M&M. On the weekend, index heavyweights RIL, HDFC Bank, and also Ultratech Cement reported subdued/below-expected report cards.

Now from earnings to macro-economics, on 12th July, MOSPI data shows India’s annual (y/y) inflation (total CPI) increased to +5.08% in June from +4.75% sequentially, above market expectations of +4.80% and the sharpest pace since Feb’24.

On a sequential basis (m/m), India’s total CPI jumped +1.33% in June from +0.48% in the previous month and the sharpest since July’23.

India’s headline inflation surged in June amid higher prices for food and housing, while dragged by lower prices for fuel & light. Overall, in June India’s inflation surged as producers/manufacturers increased prices for their products & services big after the election (as during election time, the incumbent government generally prevents any substantial price rise). Thus we have seen a significant price rise across the board from milk to medicines soon after the election ends in early June. Also, extreme heat and extreme rains (adverse weather) in various parts of the country boosted food prices, especially for vegetables, eggs, and chickens/meats. Looking ahead, we may see elevated price/inflation levels.

India’s food inflation has remained elevated near double digits on average for the last 10 years; i.e. almost 100% increase in the last decade despite India being one of the largest producers of food items in the world. The elevated/sticky CFPI (food inflation) is often a political issue in India, with the potential for a change in the incumbent Federal government. The legacy issue of high food inflation may be because of inadequate supply for the huge and still growing population, adverse weather, poor infra/storage/cold storage facilities, and lack of adequate marketing strategy by corporates (formal all-weather proof marketing) of agri products, reducing seasonal wastages/volatility in the process.

Overall, India’s 6M rolling average CPI (y/y) is now around +4.9% (vs +5.0% sequentially) against a yearly average of +5.7% in 2023, +6.7% in 2022, and +5.1% in 2021, while the long-term average rate for the last 12-years is now around +5.8%. The 6M rolling average of India’s sequential (m/m) CPI rate is now around +0.4%; i.e. an annualized rate of around +4.8%.

India’s annual core CPI was almost unchanged around +3.1% in June’24 and remains at its lowest zone since at least 2012.

 

India’s core inflation data is not official, but derived; in any way, the current divergent trend between total CPI and core CPI may also indicate subdued core demand/discretionary consumer spending. Overall, India’s real GDP is now growing around pre-COVID trend levels of around +8.0%, while total/headline inflation (CPI) has been running around +5.5% and core inflation (core CPI) has been around +4.0% for the last two years on average, while the average unemployment rate remains around 8.0%.

India’s headline unemployment rate (unofficial CMIE data) surged to 9.2% after the election in June from 7.0% sequentially. India’s educated youth unemployment rate remains around 45%.

Overall, in the last10/5 years, India’s CPI has grown around +5.8% vs current 6MRA +5.0%; core CPI +5.6% vs 6MRA +3.3%; and unemployment rate 8.2% vs 6MRA 8.0%. In his latest interview, RBI Governor Das sounded quite hawkish as headline CPI continues to hover around 5% for a long against the target of 4%; but RBI should change its tone once the Fed starts cutting rates as India's 6MRA of core CPI is now hovering around 3%; RBI may also starts cutting rates in line with Fed from Dec’24 or Feb’25 if Fed starts cutting from Sep’24 or Dec’24.

RBI still now officially/unofficially has no indication of any rate cuts; RBI usually does not issue Fed/ECB-like forward guidance through random jawboning; but RBI will follow the Fed and may officially shift its policy stance from present restrictive to neutral in the August MPC meeting and then RBI may start cutting rates either from Oct or Dec'24 (if Fed cuts from Sep or Dec'24. RBI may also cut 10 times against the Fed's 11 times for a repo rate +4.00% (min) from the present +6.50% to keep the present policy rate differential.

At present RBI’s neutral rate range is around 1.0-2.0% (real positive); i.e. at 4% target CPI (inflation), RBI may keep the repo rate at around 5.0-6.0%. But RBI is now also reviewing the neutral rate range considering the post-COVID economic scenario and may publish it by Aug/Oct’24. RBI may reduce the neutral rate range to 0.50-1.50%, paving the way for a 4.50-5.50% repo rate (~5.0%) against the 4.0% inflation target in the longer run; i.e. RBI may keep the repo rate at +5.0% against Fed’s +3.0% in the longer run (By Dec’27).

Looking ahead, the focus of the market will be on India’s Federal budget for FY25 to be presented on 23rd July; the Modi admin already presented an interim budget on 1st Feb’24. The Modi 3.0 government is anticipated to focus on several key areas to sustain economic growth and address various challenges. Here are some possible highlights and expectations:

·         Economic Growth and Recovery: The budget is likely to prioritize measures to sustain and accelerate economic growth. This could include increased spending on infrastructure projects, incentives for manufacturing, and policies to boost domestic consumption.

·         Fiscal Deficit Management: Managing the fiscal deficit will be a crucial aspect. The government might aim to balance the need for economic stimulus with fiscal prudence, potentially by targeting efficient expenditure and improving tax revenue collection. The market will closely watch the government's stance on fiscal deficit and debt management. A credible fiscal consolidation path can boost market sentiment and vice versa; India’s combined Federal and state public debt is now almost around Rs.250T.

·         As Fiscal Deficit estimates Target of 5.1% of GDP for FY25

·          As per the FRBM Act,   the government plans to achieve a fiscal deficit of 4.5% by FY26.

·         Tax Reforms: The government could introduce further tax reforms to simplify the tax structure, enhance compliance, and broaden the tax base. This might include rationalization of personal and corporate tax rates, adjustments in personal income tax slabs, and measures to boost GST collections. Any steps to simplify the tax regime or provide relief to middle-income groups could be well-received.

·         The Government may increase/double the standard deduction limit this time for the personal tax.

·         Changes in Income Tax Slab  Exemption of Rs.8 Lac or 10 lac

·         Changes in 80CC exemption - Earlier Rs.1.5 lac can make till Rs.3 lac

·         Infrastructure Development: Significant emphasis is expected on infrastructure development, including roads, railways, ports, and urban infrastructure. Increased budget allocations and public-private partnership (PPP) initiatives could be highlighted. This can have a positive impact on related sectors like construction, cement, steel, and capital goods and vice versa.

·         Agriculture and Rural Development: Given the importance of the agricultural sector and rural economy, the budget may announce schemes to support farmers, improve rural infrastructure, and enhance agricultural productivity. Measures to support the agricultural sector and rural economy, including subsidies, loan waivers, and infrastructure development, are expected to be a priority. This could impact sectors like fertilizers, agrochemicals, and rural-focused consumer goods (FMCG)

·         Manufacturing and Make in India: Policies aimed at boosting domestic manufacturing and reducing dependence on imports, in line with the 'Make in India' initiative, are expected. Incentives for sectors like electronics, pharmaceuticals, and textiles could be on the cards.

·         Healthcare and Education: Investments in healthcare infrastructure and education are likely to be key focus areas, especially in the wake of increasing demand from middle-class taxpayers. The budget might include increased spending on public health programs, medical research, and educational reforms

·         Digital Economy and Innovation: To boost the digital economy, the government might introduce policies and incentives to promote digital payments, technology startups, and innovation in various sectors

·         Social Welfare Schemes: Strengthening social welfare schemes aimed at poverty alleviation, employment generation, and social security for vulnerable sections of society could be a priority

·         Climate and Sustainability: The budget may emphasize sustainable development initiatives, including investments in renewable energy, green technologies, and climate-resilient infrastructure

·         Green Economy and Sustainability: Investments in renewable energy (RE), electric vehicles, and other sustainable practices are likely to be emphasized. This can positively impact sectors related to clean energy and technology

·         Ease of Doing Business: Measures to improve the ease of doing business, such as reducing regulatory burdens, streamlining approval processes, and enhancing the business environment, are expected to be part of the budget proposals

·         Foreign Investment and Trade: Policies to attract foreign direct investment (FDI) and boost exports could be included, focusing on making India a more attractive destination for global investors and improving trade relations

·         Disinvestment and Privatization: Plans for disinvestment in public sector enterprises and further privatization initiatives will be closely monitored

·         Unemployment, Inflation, and Monetary Policy: Fiscal/supply measures to control inflation and support economic growth without causing overheating will be critical. The interplay between fiscal policy and the RBI’s monetary policy will be crucial including the Government borrowing plan

The market may be ALSO adversely affected if there is an:

·         Increase in Short Term Capital Gain  or  Long Term Capital Gain as a fair contribution of the capital market for the development of India

·         Increase FNO tax to 20% or 30% Flat

Overall, the ‘blockbuster’ budget by Modi 3.0 admin is expected to reflect the Modi government's continued focus on economic reforms, development, and inclusive growth, aiming to position India for sustained economic progress. The market will react to how these expectations align with the actual budget proposals. Positive and growth-oriented measures, along with a clear and pragmatic fiscal roadmap, could boost investor/market confidence and market performance and vice versa (if the actual budget comes below market expectations).

Nifty jumped OVER +3500 points from the exact poll day panic low (4th June) around 21281.45 to 24842.05 on 19th July on hopes & hypes of political & policy stability in Modi/NDA 3.0 including a blockbuster budget coupled with positive global (Wall Street) cues amid hopes & hypes of an early Fed pivot and Trumponomics optimism (tax cuts). But India’s Dalal Street was also affected by a report (trial balloon) that there may be an additional tax on the FNO (Future & Option) trading system in line with 30% business income tax to curb increasing retail interest as it’s causing wealth destruction among India’s retail traders/investors.

Anyway, looking ahead, Modi 3.0 may ALSO face difficulties in meeting demands of huge fiscal grants from key allies like TDP (Naidu) for AP (Andhra Pradesh) and JDU (Nitish Kumar) for Bihar (BR) for above INR 1T (~$13B) each for their states. This may open Pandora’s Box as many other ‘bankrupt’ or even ‘rich’ states may demand similar grants for their states. Due to decades of economic mismanagement, huge government spending for infra, salaries & pensions, and various social welfare schemes (freebees) much more than core tax revenues by both Federal and state governments, almost all Indian state governments and also Federal governments are now nearly bankrupt; have to take a fresh loan just to make payment of interest of previous loans.

Almost 45% of the core tax revenue of the Federal government is being spent on interest payments on public debt and 35% on government salaries & pensions. The same is also almost the same for states on average; both are highly indebted. The overall public debt of Indian Federal and state governments is now around INR 250T; although most of the public debt is in LCU (Local Currency Unit), a higher deficit, higher debt and more devaluation of LCU are causing hotter inflation and higher cost of living, lower discretionary consumer spending, lower production and eventually lower real income; i.e. this vicious cycle will eventually affect the economy.

Although PM Modi is trying his best to look and sound strong administrator (dictator) as in Modi 1.0 and 2.0, his real test would be now how to manage/handle the demands of key allies like TDP and JDU, upon whose support his government (Modi 3.0) is now running. Although Modi may be able to manage these allies amid PMLA/ED/CBI power, the overall fiscal equation may be affected.

Looking ahead, after another miserable defeat in recent ten state bypoll elections, the market focus will be also on key state elections in late 2024 in Maharashtra (MH), Haryana (HR), and Jharkhand (JH) and also in Delhi (DL), and Bihar (BR) by early- late 2025. Modi has to win these elections (at least in MH, HR, and BR as BJP is the incumbent party) to consolidate his position in the party (BJP/RSS).

But considering very poor performances in the recent LS elections and the fading Modi wave, it would be very difficult for Modi this time to win in these state elections. In that scenario, PM Modi may have to exit electoral politics by late 2025 ‘gracefully’ on BJP’s 75-year ‘Retirement’ policy and RSS may back moderate Nitin Gadkari as the next PM Candidate of the ruling party BJP (face-saving exit for Modi). Thus Modi 3.0 may be too preoccupied with politics rather than economics unlike in Modi 1.0 & 2.0.

Overall, considering the overall RSS/BJP narrative which does not support Modi behind the scenes/camera now, and also Modi & Co.’s body language indicates the ‘Marg Darshan’ option for PM Modi to take early retirement by Dec’25. 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 or even by 2026-27, 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 next preferred PM candidate, supported by a large section of BJP, and RSS Nagpur/MH business lobby, despite Shah is also in the run, supported by the GJ lobby. In any case, Modi 4.0 may not be possible after the 2029 election, as Modi will be almost 80 years of age by then, higher than the usual 75-year retirement policy from active politics (‘Marg Darshan’ policy of BJP).

In the forthcoming budget, there may be some additional personal tax cuts in the form of higher SD (standard deduction) to Rs.1.00 lacs. Modi may also give priority to various infra projects in AP and Bihar with an emphasis on disinvestments/monetization of various PSU units/assets as India’s Federal debt (without states) is now fast approaching INR 200T (~$2.41T), more than 100% of real GDP. India has to fund the requirement of huge deficit spending in various ways including higher revenue from tax and also sales of PSU assets/companies.

For that there is a need for political partisan not only between BJP and INC but also among various regional political parties to fund deficit spending as there is limited scope for further incremental debt; too much debt, even in LCU may mean higher money printing/higher liquidity and negative for the economy. Although PM Modi is now trying for political consensus on major economic issues, it may be too late and too little considering the nature of dictatorship and vendetta politics for the last ten years.

Modi alone was 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 from 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 in an orderly manner.

After Modi in 2029 and in the absence of any credible successor in BJP who can match Modi’s popularity and so-called 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. Thus there is a need for political/economic consensus among not only the two main political parties in India (BJP-INC) but also among various regional parties in various states across India, as India is a union of states and states have to push/implement various policies and reforms designed by the Federal government.

So, coalition government/politics will be more prominent and the reality in the coming days/years in the absence of Modi/under weak 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. Thus moderate Gadkari may be an ideal person for RSS/BJP to be the next PM candidate.

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 to increase the overall supply capacity of the economy to match growing population/growing demand and ensure price stability. Modi was unable to bring any monumental real policy reform required for the economy like land and labor reform.

However, Modi was very successful in the implementation/execution of various policies that were already introduced by previous UPA/Cong admins. And Modi was also able to go for some ‘monumental’ political reforms like the abolition of Article 370 in line with the long-term agenda of RSS/BJP. This time, before the election, Modi also promised more such ‘big political reforms’ rather than monumental economic reforms, which is the need for the day to resolve the huge crisis of unemployment and inflation in the country.

The government should also actively think about population control policy for the next 75 years at least so that the growing demands of the economy may match with slowing supply capacity of the economy. The Government should also take appropriate long-term measures to create more traditional/transport and social infra (education and healthcare) with an appropriate policy for the requirement of huge deficit spending.

To support the requirement of a huge deficit spending without taking too much unsustainable debt, there is a need for bipartisan/multi-partisan political/economic consensus for higher revenue from the personal tax front (like minimum payroll/social medicare tax in line with US model) and also from non-strategic PSUs disinvestments; over the last few years, especially in Modi 2.0, the pace of PSU disinvestments (non-strategic) has been reduced and it seems that the government/Modi admin is slowing down or even abandoning the path for a political reason; PM Modi is now batting for increasing/higher market capitalization of listed PSU companies as a result of upbeat Dalal Street.

For all these important policy reforms, there is a need for political bipartisan support not only between BJP and INC (two main national parties) but also among/with various big regional parties in various states as its states, which have to eventually implement these policies. Thus there is a need for a moderate PM, who can create such an atmosphere of cooperation on important economic/other issues despite political differences/fights.

The federal government should also share credits for all types of developments/projects with states including various Railway projects as without cooperation from states, proper implementation of such projects/social welfare schemes may be very difficult. India now has to increase its supply capacity of the economy multifold to match the increasing demand of the economy as a result of population explosion and growing middle class, almost equivalent to the entire US population.

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, but the EM scarcity premium may remain intact by & large due to India’s proven macro stability in the last two decades amid broader policy consensus, be it NDA or UPA in charge of the country. India’s attraction to 6D ((development, demand, democracy, demography, deregulation, and digitalization) is a prime driver of India’s EM scarcity premium. Even 20% of the Indian middle class (around 300M) is equivalent to the whole US middle-class population, having significant discretionary consumer spending capacities.

But ideally, both BJP and Cong, two major political parties in India should maintain a cohesive/bipartisan/multi-partisan economic policy (like Democrats and Republicans in the US) despite divergent political views/ideology. 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; it’s a simple arithmetic eventuality now irrespective of any political narrative.

The Indian economy grew incrementally from 1995-2000 after the monumental economic reform initiated by Narasimha Rao/Manmohan Singh (PM/FM) government (INC), which was subsequently carried forward by both BJP and CONG/INC governments (NDA-UPA) with varying political narratives; but there was a broad macro-stability over the last 25 years.

India needs now GST tax reform without frequent changes in rates and multiple slabs. As revenue revenue-neutral strategy, India should apply a 15% or even 10% uniform GST rate across all products and services including petroleum products. India’s CII has prescribed three slabs/rates for GST with the inclusion of petroleum products.

However, GST reforms are a complex task now as there are interests of states and also there is immense political opposition. Thus any GST reform may take a longer time. But Federal Government/Modi 3.0 may provide some fiscal sops/stimulus to an urban middle class, a traditional vote bank of BJP ahead of Sep’24 state elections and after subdued report card in the recent general election. Modi 3.0 may cut some rates of income tax and may also reduce too many slabs in the personal income tax for higher compliance. Modi 3.0 may also increase the SD (Standard deduction) from present levels of Rs.50K to Rs.100K for the new tax regime (w/o any tax cut deductions) in line with higher cost of living in the last ten years, which almost doubled.

But India also needs out-of-the-box ideas or monumental reforms in various aspects (rather than a mere 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 PDLs 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.

Overall, despite incremental improvements in the last few decades, India is still far behind China in terms of infra (traditional, transport, and also social). Thus there is a huge scope for improvement for India’s ailing infra, especially railways and also education & healthcare to match with growing/huge demand for a huge/still growing population of almost 1.50B of the country. India’s long waiting lists (3-4 months) for train tickets in the busy traveling/holiday season has still been a big issue for the last few decades indicating that transport infra is still significantly inadequate to the growing demand of the population/economy; the same is now also almost true for airways.

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/growing government spending and service/IT/petroleum products exports. But India needs to grow in double digits (at least 10-12%) 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 Southeast Asian exports, which will eventually create mass employment (like in China).

Conclusions:

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 the recent election setback, he may have no other option but to opt for a face-saving early exit from active electoral politics by Dec’25 or even before on BJP’s 75-year mandatory 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 for the time being.

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future/ India 50 CFD (24400) now has to sustain over 24700-24950* for any further rally to 25100* levels in the coming days; otherwise sustaining below 24650/24500-24400/24300* may further fall to 24000/23700-23300*/23000 and further to 22800/22600*-22300/21800/21300* and further to 21150/21000*-20400/20000* in the coming days.