Nifty Jumped to a New Lifetime High on RIL Boost, Signs of COVID Plateauing

Jumped to a New Lifetime High on RIL Boost, Signs of COVID Plateauing, and Gradual Reopening

India’s benchmark stock index Nifty (NSEI) closed around 15435.65 Friday; surged almost +0.64% on RIL boost, signs of COVID plateauing and gradual reopening initiative in some key states/UT like Delhi. Nifty made a fresh lifetime high 15469.65. Overall for the week, Nifty jumped +1.72%, while soared +5.50% for the month (May).

On Friday, Nifty was mainly boosted by index heavyweight RIL, as it contributed almost +89 points out of +98 points surge in Nifty. RIL soared over +6% on hopes of blockbuster operating margin for its petchem business after polymer spreads jumped 10-years high amid strong downstream demand (automobiles, consumer durable goods, packaging, and pharmaceuticals/medical supplies). Also, higher GRM and sustained strong petchem margin may pave the way for deleveraging and a possible stake sale to Saudi Aramco (SE:).

The Indian market was also boosted by signs of COVID plateauing as official figures of daily infections continue to flatten, although reported numbers of COVID deaths remain elevated. The market is now expecting that after June, there will be gradual unlocking of the country/various states; almost 75% of India is now under full while resting under partial lockdown.

On Friday, Nifty opened in an upbeat mood amid positive global cues and metal boost amid overnight rallies in several metal futures on Biden’s fiscally expansive budget plan and progress of his huge infra stimulus. There was also a report that India’s Finance ministry is working on the next COVID fiscal stimulus package focused mainly on the consumer-facing service industry (travel & tourism, leisure/hospitality) and also MSMEs, most affected by the COVID tsunami and full/partial lockdowns across the country.

After some brief negative moves in line with Dow Future (European opening), Nifty got a further boost as the Delhi government announced due to decreasing trend of new COVID infections, they will reopen the economy gradually from 1st June and will relax construction activities and factories with all the necessary COVID protocols. There was also another report that Mumbai/Maharashtra may also ease some COVID restrictions.

Nifty was also buoyed after the Indian government minister claimed that the country will be able to fully vaccinate the entire population by Dec’21! The Modi government is now under immense pressure from all quarters including almost all political parties.

Earlier Friday, INC leader Rahul Gandhi blamed PM Modi over the Federal government’s ‘failed’ COVID vaccination strategy as only 3% of the country’s population have been vaccinated since the vaccination drive began mid-January: “I am saying that the second wave is Prime Ministers’ responsibility. The nautanki (gimmick) Prime Minister did, and not fulfilled his responsibility is the reason behind the second wave. If the vaccination keeps on going like this then the vaccination of the whole country will be complete by May 2024”.

But the Union Minister of Information and Broadcasting Javadekar on Friday countered Gandhi and said that India will vaccinate all citizens by Dec’21 and slammed Gandhi for allegedly doing politics over COBVID vaccines:
“The Union Health Ministry last week explained the framework of the administration of 216 crores COVID vaccine doses by December 2021. It means 108 crore people will be vaccinated. It mentioned the vaccines like COVAXIN, COVISHIED, Zydus Cadila, Sputnik V, and others for the purpose. So people should understand the immunization against COVID in India will be completed before December 2021. Rahul Gandhi Ji if you understand the importance of vaccines, then why you did put a question mark on it when the COVAXIN was introduced. Do not create confusion in the minds of people. Your gimmick did not stop even when the Prime Minister took the vaccine himself. By December, 216 crore new vaccine doses will arrive in India, which will be administered to more than 108 crore people. Do not spread fear. India is the second fastest and most vaccinated country today.

When the nation is fighting the COVID, at such a time, Rahul Gandhi uses the word ‘nautanki’ for the efforts made by the government. It is an insult to the country and its people. We will not use such words because the public has stopped their ‘nautanki’ already—“.

In any way, whatever may be the political narrative; India is now gradually shifting to the strategy of maximum COVID vaccinations with at least a single (1st) dose preference, considering the ground reality of poor availability of vaccines. The country has inoculated almost 19% of the targeted population (1080M) with at least a single dose in around 4.5 months; i.e. around 4% in a month on an average. Looking ahead, if the government can continue and implement single dose vaccinations with a priority for a maximum number of people, it may be able to inoculate around 10% of the population or more in a month, depending upon the expected higher availability.

Thus, India may be able to vaccinate almost 100% of its targeted population by Dec’21 with a single dose at least; Sputnik-Lite and J&J single-dose vaccines may also help additionally. A single dose of COVID vaccine offers almost 70% immunity ratio on average (after 14/21-days) and thus it will help to improve the current horrible COVID scenario significantly.

Also, after the huge 2nd COVID wave, a significant portion of the population has natural herd immunity and thus they can wait for proper vaccinations (T5 cell memorization) after at least 9-months. And after the expected sufficient availability of COVID vaccines including mRNA ones from 2022 onwards, India can start the booster dose for all its population. Without at least a single dose of COVID vaccinations for most of the targeted people, neither public nor the government has the confidence to unlock the economy completely even with necessary COVID mitigation protocols. There may be another major wave of COVID even after 2nd wave flattening if the country again opens too much and too fast (like last time) without at least single dose vaccinations.

So the stress should be on at least single dose COVID vaccinations for a maximum number of people considering the ground reality. As per channel check, we may see a significant acceleration in single-dose COVID vaccinations across the country from June onwards with ease of registration/appointment process to avoid chaotic scenes at vaccination centres.

The trajectory of economic recovery will mainly depend on the progress of COVID vaccinations, at least a single dose for a maximum number of people. If India can implement this strategy of single-dose COVID vaccinations for a maximum number of people, we may see significant flattening of the COVID curve by Dec’21 and the country can reopen significantly with confidence along with basic COVID mitigation protocols including mask-wearing outside the home.
Depending on the availability of COVID vaccines from 2022 onwards, it may take another 1-2 year to fully vaccinate the entire population (at least 80%) including children/adolescents, so that the country can reopen fully (including schools/colleges/educational institutions) without masks and people have the confidence to undertake normal economic/social activities.

On Thursday, Nifty was also undercut as RBI said in its FY21 annual report that the sharp rally in the domestic equity markets despite an estimated -8% contraction in GDP in FY21 poses the ‘risk of a bubble’.

Is the Bubble in Stock Markets Rational?

Prices of risky assets surged across countries to record high levels during the year on the back of unparalleled levels of monetary and fiscal stimulus, and the turn in market sentiments following positive news on the development of and access to vaccines and the end of uncertainty surrounding the US election results. The widening gap between stretched asset prices relative to prospects for recovery in real economic activity, however, emerged as a global policy concern.

India’s equity prices also surged to record highs, with the benchmark index (Sensex) crossing the 50,000 marks on January 21, 2021, to touch a peak of 52,154 on February 15, 2021, which represents a 100.7 percent increase from the slump just before the beginning of the nationwide lockdown (i.e., since March 23, 2020) and a 68.0 percent increase over the year 2020-21. This order of asset price inflation in the context of the estimated 8 percent contraction in GDP in 2020-21 poses the risk of a bubble.

But Nifty recovered soon after fine prints of the RBI report reveals the ‘bubble’ (Minsky moment) comment as a general nature.

On Friday, the Indian market was boosted by energy (led by RIL), infra, banks & financials, metals, automobiles, and FMCG, while dragged by exporters (lower ) led by pharma, IT/techs, MNC, and also media. Nifty was boosted by RIL, HDFC Bank (NS:), HDFC (NS:), Kotak Bank, Grasim (NS:), Adani (NS:) Ports, M&M (upbeat report card), ITC (NS:), Infy and Bharti Airtel (NS:), while dragged by ICICI Bank (NS:), TCS (NS:), Sun Pharma (NS:) (subdued report card), Axis Bank (NS:), Bajaj Fin, SBI (NS:), Bajaj Fin Service and DRL.

Looking ahead, the focus may be on the quality (nature) & quantity (amount in % of GDP) of fiscal stimulus for COVID lockdown 2.0. Stimulus addicted Dalal Street was expecting an imminent fiscal stimulus, especially on the demand-side as the supply chain is not adversely affected this time in full/partial lockdown across various Indian states unlike an all-out national lockdown last year. So far, most of the fiscal stimulus in the last year was mainly on the supply-side; i.e. to boost up production. But the need of the hour is now boosting up consumer demand by providing some tax reliefs.

On Friday evening, after market hours, Indian FM Sitharaman said the government has not taken a call yet on such fiscal stimulus 2.0, consulting various state governments and industries to assess the actual impact and accordingly will take a call by next few months (possibly Aug-Oct’21 period like in last year):

—-the decision to grant yet another fiscal stimulus to the industry will be taken only after an assessment of the impact of the second wave of the COVID is completed. Such a decision could only be taken after correctly and accurately analyzing the impact of the second wave of COVID-19 pandemic on the country and different stakeholders. There has been no national lockdown, but states have announced lockdowns, so we are taking inputs from states and industry, and we will take a call accordingly. The process of consulting States and industry is going on. We have not made any final call on this.

The budget has been announced only on Feb 1, we are in May, we have the entire year to go, the second wave has come, there’s not a complete lockdown but yet states have had a lockdown. So we are getting inputs, we need to take a call– we need to understand where the impact is, how much it is, and so on. That process of consulting, the states consulting, industry, is going on. We have not made any final call—

Last year when there was a complete lockdown, the impact and the assessment of the various sectors after due consultations, we assessed it for what it was sometime in August which extended till October– so we kept announcing it–

As India is already paying almost 50% of its revenue as debt servicing interest, there is inadequate fiscal space for providing any further fiscal bazooka. Under the present Federal/States democratic structure, it’s also not easy to change the GST structure without the permission of states. And Modi government has now an inadequate political mandate to implement various structural reform proposals put in the last budget (FY22).

Thus, there may not be any stimulus on tax sides, either direct or indirect. Moreover, we may see a special COVID cess (tax) in the coming days and no significant rollback of exorbitant fuel tax. Irrespective of any narrative, an economy always needs maximum employment (good-paying jobs) and price stability, both of which continue to be a distant dream for India.

All focus would be now on RBI next week (4th June) to see whether RBI can provide any further monetary vaccine, especially on QE-Lite to bring Indian bond yield meaningfully lower from the present 6% levels. But for this to happen, Indian core or headline inflation needs to be stable at around 4%, the RBI target, which requires structural reform by the government (fiscal authority), not mere QE.

As per unofficial/private statistics, the Indian unemployment rate is now around 11.6%, but considering full/partial lockdowns across India, the actual rate may be a minimum of 25% and the underemployment rate may be much higher. Only government employees/pensioners and mid/senior levels employees of large private sector companies are safe in these lingering COVID disruptions/lockdowns. A country can’t run like this for long and thus the need of the hour is speedy COVID vaccinations, at least a single dose for a maximum number of people for workable herd immunity and restoration of public/admin confidence, critical for the economy.

Bottom line:

The Indian government first needs to apply all its available fiscal power to vaccinate (against COVID) the country free of cost like in advanced economies. And after complete COVID vaccinations, the country can rebuild itself by providing appropriate infra/green stimulus and tax reliefs. The Indian economy needs to produce good-paying jobs for the masses so that the tax revenue to GDP ratio improves significantly; otherwise, the fiscal path continues to be unsustainable (abnormally high debt interest/revenue ratio) even after deleveraging (monetization of public assets).

Technical View: Nifty and Future
Technically whatever may be the narrative, Nifty Future now has to sustain over 15525/15600-15800 and Bank Nifty Future 35900-36550 levels for a further rally; otherwise except some corrections.



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