India’s benchmark stock index Nifty- 50, also known as the India- 50, is the world’s most actively- traded contract and has the weighted average of 50 large-cap companies (blue chips). The Nifty 50 is listed on India’s NSE (National Stock Exchange) and also in the form of various ETF products locally and& globally, along with CFD with various offshore CFD brokers. The Nifty 50 is a free-float market capitalization-weighted index, having an average market cap of around $3.1T as of May 20’21. ; Trading volume was around $1.3T in FY20. 

Nifty 50 has comprises 13 -sectors of the Indian economy:

Banks and& financial companies have almost 40% weightage in the Nifty 50, followed by energy at 15%, tech at 13%, consumer goods at 12%, automobiles at 6% and rest various others at 14%. Among individual scrips, RIL has a maximum weightage of around 10%, Infy 8%, HDFC Bank 8%, HDFC 8% and TCS 5%; i.e. any large volatility in these scrips for from any underlying news also can affects the Nifty 50. For example, a few days ago, RIL was affected by the plan of big green capex, subdued report card (Q1FY22), and an adverse SC verdict for its M&A plan with Future Retail/Amazon fiasco. Similarly, HDFC bank was affected by mixed report cards for Q1FY22 and elevated NPA/NPL for COVID issues (2nd wave). Thus the Nifty 50 was under stress despite positive global cues.

India’s Nifty 50 is a mixed index as almost 60% of revenue/EPS comes from exports. Thus, higher USD/INR rates iscan be positive for the index to some extent. Also, almost 80% of the Nifty 50 movement comes from global cues rather than local; i.e. India’ Dalal Street largely dances to the tune of Wall Street/Global Street. The Nifty 50 largely follows largely Dow and Hang Seng Futures most of the days, except some in times of special local news like elections, budget, fiscal/monetary stimulus, etc. As the Nifty 50 is an export-heavy index, an adverse domestic event like surging inflation and oil price usually does not affect the index significantly.

History of major crashes/fall of in the Nifty 50:

India is now providing infra stimulus (creating assets) by borrowing as well as deleveraging (disinvestments/selling PSU companies/monetizing existing assets). India now needs to accelerate this process of deleveraging to fund infra and /fiscal stimulus and to strengthen its balance sheet. Almost 80% of India’s government revenue goes towards interest and another mandatory spending including government salary and& pension. The country needs some structural reform to improve the quality and& quantity of employment and tax revenue significantly in line with nominal GVA growth. India needs to combine targeted fiscal and/ infra stimulus and structural reform to improve its productivity, which is could be the ultimate solution. And Meanwhile, the COVID adversity is a big opportunity for PM Modi to use the mix of that targeted fiscal stimulus and structural reform to bring out the economy from the pre-COVID stagflation-like scenario.

Unlike AEs (U.S./Europe), and most of the G20 peers, India has a great advantage of blue-chip PSU companies and/ assets to monetize (deleverageing) and to fund incrementally higher deficit spending (fiscal/infra stimulus). The Indian government is taking Chinese-style infra investment and goods and /products export-led growth for higher employments. But Indian borrowing costs should be much lower along with energy and& raw material costs to compete with China and other /global peers. And, like China, India needs innovation like China to become a formidable power in the post-COVID world.

Taking fresh debt or refinancing old debt perpetually is not an issue for a country like the U.S. or even India. But the main issue is debt servicing; i.e. interest payment as a proportion of nominal revenue. For the U.S., due to lower bond yields, overall interest/revenue is now hovering around 10%, which may surge to around 15% by in the next few years to fund Biden’s fiscal stimulus (CARES Act 3.0 and infra stimulus). B

Main concern: 

Growing government debt interest payment in comparison to nominal or core revenue as tax/GDP ratio is hovering around 8.5%

Debt interest/nominal revenue is now hovering around 45%, while debt interest/core revenue is around 50%. Moreover, (mandatory spending and+ debt interest)/core revenue is around 90%. Indian direct and/ personal tax revenue is very low, due to not only to compliance factors, but also due to various exemptions, available and the fact that most of the non-salaried common man (public) does not pay any tax at all or does not earn enough to pay any income taxes. India also needs to simplify its indirect tax structure to rein in surging inflation and to provide fiscal stimulus on the demand side; so far it’s providing fiscal stimulus for the production side.

Bottom line:

India is a vibrant democratic country that’s, now enjoying a scarcity premium (political & and policy stability) and a unique position in the EM space (except China)as well as . India is now enjoying the highest FPI flows among EMs (except China) due to ‘scarcity premium’, political & policy stability, fiscal prudence, targeted fiscal stimulus, and structural reforms (from farms to railways). FPIs/FIIs are scrambling for Indian blue-chips, as there is an opportunity to invest in a good business model, having credible management, and a strong balance sheet (especially after deleveraging). 


 

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