Overall, Nifty plunged almost -1385 points; i.e. almost -7.45% from lifetime high 18604.45, scaled in Oct’21 to 17216.10 Monday. The primary reasons behind Nifty’s plunge:
- The concern of expensive valuation and downgrading by several foreign brokerages
- The concern of uncontrolled inflation and its effect on discretionary spending/overall economic growth
- The plunge of index heavyweight Reliance Industries (NS:) (RIL) as it called off a potential stake sale (deleveraging) with Saudi Aramco (SE:) for its O2C (oil to chemical) business for $20B
- RIL was also under stress on the continuous exit of Jio subscribers
- Rollback of three contentious Agri bills by PM Modi ahead of UP and Punjab state polls, which may be seen as a setback for reform agenda for political populism
- Lower , negative for export savvy Nifty earnings
- Higher Indian bond yields; i.e. higher borrowing costs for the economy
- Mixed report card and guidance amid elevated raw material costs
- Potential RBI tightening in the coming days after the close of QE/GSAP bond-buying
- Mixed/negative global cues amid COVID spikes/lockdowns in Europe/Germany and faster than expected tightening by Fed
But on Thursday Nifty bounced back almost +121 points (+0.70%) to close around 17536.25 primarily on RIL boost as the index heavyweight soared over +6% and alone contributed +111 points in the Nifty. RIL soared on demerger move after the company announced to implement a Scheme of Arrangement (Scheme) to transfer Gasification Undertaking into a Wholly-Owned Subsidiary (WOS).RIL was also upbeat amid a report that DreamWorks& E! Entertainment coming to India with Jio.
Although RIL has virtually called off a probable stake sale to Saudi Aramco, the deal may also happen in the future after revaluation amid changing perspective of Oil & gas industries (fossil fuels) and the emergence/stress of green energy (EV). Moreover, Saudi Aramco may also invest in RIL’s EV business, where RIL is now investing around $10B. In any way, RIL is deleveraging in various ways irrespective of Saudi transactions. And the present prospect of refining business is quite good considering attractive GRM. Also, the world is not yet ready for a full transition from fossil fuels to green energy and thus demand for oil/petrol/diesel/gasoline will be elevated.
On Thursday, Indian market sentiment was also boosted as influential global rating agency Moody upgraded India. Moody’s projected the Indian economy to rebound strongly owing to rising vaccinations, the accommodative stance of RBI, and higher public spending. Moody’s said the Indian economy to rebound strongly and projected FY22 GDP growth at +9.3% But Moody’s also cautioned that if new waves of infections were to occur, it could cause fresh lockdowns and erode consumer sentiment.
Moody’s expected India’s economic growth to rebound strongly amid growing government spending (fiscal stimulus) on infrastructure, which will also support demand for steel and cement. Thus rising consumption/demand, India’s push for domestic manufacturing and accommodative funding conditions will support new investments. Also, India’s rising vaccination rate, stabilizing consumer confidence, low-interest rates and higher public spending underpin positive credit fundamentals for nonfinancial companies.
“India’s steady progress on inoculation against the coronavirus will support a sustained recovery in economic activity. Consumer demand, spending, and manufacturing activity are recovering following the easing of pandemic restrictions. These trends, including high commodity prices, will propel significant growth in rated companies’ EBITDA over the next 12-18 months.
However, if new waves of infections were to occur, it could cause fresh lockdowns and erode consumer sentiment. Such a scenario would dampen economic activity and consumer demand, potentially leading to subdued EBITDA growth of less than 15-20% for Indian companies over the next 12-18 months—also delay in government spending, energy shortages that lower industrial production, or softening commodity prices may curtail companies’ earnings.
The low-interest rates will help in cutting funding costs and support new capital investment as demand grows but rising inflation may result in a faster-than-expected increase in interest rates, which would weigh on business investment.”
On Thursday, the Indian market was boosted by energy, realty, media, telecom, infra, pharma, tech/IT, metals, FMCG and MNC, while dragged by banks & financials, and automobiles. Nifty was supported by RIL, Infy, Kotak Bank, HDFC Bank (NS:), ITC (NS:) (Savlon nasal spray clinical trial for COVID prevention) and Bharti Airtel (NS:) (higher tariffs and 5G trial). Nifty was undercut by ICICI Bank (NS:), HDFC (NS:), HUL, L&T, Bajaj Finance (NS:), Axis Bank (NS:), and Maruti (NS:).
Although Modi blinked on the Agri reform bill, it was never implemented in any way by states amid huge protests by farmers for over one year. Now, Modi may look at these reforms again after the UP and Punjab elections. The UP election is vital for Modi and may be seen as a referendum of his popularity, politics, and policies ahead of the 2024 General Election. Although still now Modi/BJP is ahead in the UP election, the aim is to gain a maximum number of seats.
Due to farmers’ protests, BJP was unable to campaign in rural Western UP (Agri belt) and thus Modi rolled back the controversial agri bill. Although it may be negative for his reform & performance agenda, it may also ensure a big win in UP for Modi, which is positive for the market.
Going forward, all focus would be the 2024 General Election (on the political front). Modi may ensure huge fiscal stimulus, especially on railways (various high-speed trains across India). In the 2024 election, Modi may face Mamta (Didi) of TMC (present WB CM) as INC is fading day by day. Mamta is now expanding rapidly on national levels in an inorganic way by the acquisition of various INC fractions in various states. In a democracy, a single-party monopoly is never good; thus a dual-party contest at national (Federal) levels is always welcome. But till now, Modi is far ahead of Mamta at the national level in terms of popularity.
In any way, technically whatever may be the narrative, Nifty (spot) now has to sustain over 17575-17650 levels for a further rally to 17755/17815 and 18000/18200-18450/18645 zones; otherwise, it may again fall to 17300-17150/17075, which should act as a big buying zone for institutions (DIIs). Further, if sustain below 17000, expect deep correction towards 15950 levels in the coming days. Looking ahead, if Modi is projected to clinch a comfortable victory in the UP poll, expect 20K by Mar’22; budget optimism may also help.