India Morning Report: Budget day starts with reset expectations

Markets seem to be running with the perfect assignment: to overturn budget blues of a hung parliament and show a sharp positive return in a return of ‘majority rules to Indian democracy, being also labeled partisan to BJP interest aiding and abetting the idea train that markets are leading the economic recovery belying their own over optimistic tendency again with a pre announced 7800 top , a sharp exit from which left budget week in disarray at least for new comers and foreign investors having turned buyers lately. Indian DIIs assume center position in the coming months till the end of 2014 with FIIs already inside the market to the tune of another $20 Bln, and the fund management industry has to have realised by now that this is the last opportunity to board Bullet Raja’s 21st Century train ( aka  ‘The Golden Palace’ or ‘Palace on Wheels’) bringing back the India meme in global economic circles after a big bout with negativity staple fodder of India analysts from back in 2006 or at least 2008.

Modi and Shah unite a new cleaned up (and slimmed down) version of the functional executive in India under a Hindu government whose Economic agenda is as clear as any of the strong governments of “no choice’ earlier in the short post Independence history of India. Malls, Bullet trains and Fashion boutiques/Beauty parlors are ready and waiting to cater to a Generation Y willing to partake of their share of the demographic dividend as India undertakes probably the penultimate step of the journey to GDP health in the Global pecking order, having underscored miserably on the per Capita front in the first few tries and markets would depend on continuing improvements in execution for hard results from the Modi Government for further moves north.

A concomitant revamp of major Indian statistics and a broadening of the research and Data mandate is probably concomitant to this push for execution if one is to rely on foreign investment (private investment) as has been the focus here since 2009. However as far as budget day moves are concerned, the continuing breakdown of the plus trade in cyclicals led by a 10% shutout in ICICI Bank early in the week are key watch points for any rally in the remaining part of the week as the Budget document from a new FM is likely to eb a staid , boring one focussing on putting the fiscal house in order esp as Tax collection targets are to be cut down by 20%

The essay above is probably excused by the fundamental nature of change manifesting itself in the deeper Indian markets which are in the Global Top 10 by Market Cap if only on adding both BSE and NSE behind China and Hongkong ( $2.3 Tln vs $3.4 tln each) and a few others behind the US markets getting nearer to $20 Tln

In the morning’s concerns, a rally in Cement and real estate in today and tomorrow should alert you to a more sustained bear short taking over ( again, probability <0.01) . Pharma and IT lead candidates from Dollar markets performance while Consumer goods and Energy segments could be the easiest conversions in a shoot out rally building on overall good marks for the budget. The 8000 mark is very probable but somewhere in Calendar 2015 after the first 6% plus scores in quarterly GDP performance or corresponding marks in CPI and IIP, but 7800 is fair game , equally probable this week and July series as for December 2014.

I would continue buying YES Bank, IDFC, GMR infra and ICICI Bank with eager catch up on ITC and Bharti positions. The Rupee markets moved up at open , pointing us to interest in domestic debt markets getting deeper again again our Indian 10-Y yield targets of 8.25-8.5% back in play before a structural push to move down to sub 8% in a fully performing economy in 2015, till the end of this business cycle near 2018.

 

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