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In the wake of the recent election results, stocks linked to Andhra Pradesh and its Chief Minister, Chandrababu Naidu, have surged by approximately Rs 20,000 crore over just eight trading days. This spike has outpaced the “Modi stocks,” which refer to capital expenditure and infrastructure-linked stocks of public sector undertakings (PSUs) and corporates.

While Modi’s broader market influence remains robust, traders have capitalized on the immediate momentum of Naidu-related stocks. Known for his pro-reform stance and industry-friendly policies, Naidu has garnered a significant following in the financial community.

Since Naidu’s victory on June 4, and his emergence as a key ally to Prime Minister Modi’s NDA with 16 Lok Sabha seats, 24 specific stocks have been under keen investor scrutiny. Notably, microcaps such as Anjani Foods and Crane Infrastructure have surged by 69% and 53%, respectively. Heritage Foods, promoted by Naidu’s son Nara Lokesh, has seen a 40% increase. Additionally, companies like KCP, The Andhra Sugars, Pennar Industries, and Amara Raja have posted substantial double-digit gains.

The collective market capitalization of these 24 stocks has risen by around Rs 20,198 crore, reaching Rs 2,18,889 crore since June 4. According to The Economic Times report, Sunny Agrawal, Head of Fundamental Equity Research at SBI Securities, investors are optimistic about a synergistic relationship between Andhra Pradesh’s state government and the central government, which could bolster growth prospects.

Expectations are high for Naidu to initiate large-scale infrastructure projects and attract significant investment, potentially transforming Andhra Pradesh into an electronics manufacturing hub. The revival of the Rs 40,000 crore Amravati project, along with the Rs 47,000 crore Polavaram irrigation project, are key focal points.

The report added that the companies with substantial operations in Andhra Pradesh, such as Sagar Cements, KCP, and NCL Industries, are particularly poised for growth. In contrast, the BSE PSU index has struggled to recover, closing 6% lower than its pre-election level. For now, Naidu’s stock performance appears to be outshining that of Modi’s.

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In its latest note, global brokerage house Jefferies highlighted that the Modi government’s renewed efforts to include natural gas under GST could benefit companies like Gujarat Gas Ltd, GAIL (India) Ltd, and Petronet LNG Ltd.

The brokerage noted that among the 4 key states that could hold sway, 3 are under the ruling NDA. The inclusion could potentially reduce natural gas costs by $0.8-0.9 per mmBtu, facilitating quicker adoption and boosting GAIL’s transmission and trading volumes in the medium term. Jefferies also anticipated a 2 percent rise in GAIL’s consolidated EBITDA, assuming it retains the benefit in the LPG segment. Meanwhile, Gujarat Gas’s competitiveness relative to propane could improve by 6 percent, benefiting either volume or margins, and Petronet LNG could experience increased liquefied natural gas (LNG) demand.

According to Jefferies, media reports indicate a revival of discussions on including natural gas under GST after previous unsuccessful attempts. VAT on natural gas totaled approximately ₹20,000 crore in FY23. The brokerage expects gas companies to pass most of these savings to consumers, aligning with the government’s GST objectives. Furthermore, it pointed out that Andhra Pradesh, Gujarat, Uttar Pradesh, and Rajasthan are major beneficiaries of VAT on natural gas, with the first three governed by the NDA could bolster prospects for a breakthrough in discussions.

GAIL: Jefferies expects GAIL to benefit from increased natural gas (NG) competitiveness, driving higher adoption rates and medium-term growth in transmission and trading volumes. The company anticipates gains in its LPG and transmission sectors, planning to pass some savings to consumers. While GST covers tariffs in GAIL’s transmission, VAT on NG as fuel remains stranded, estimated at ₹80 crore for FY24, it further said. It added that GAIL offsets VAT in trading by matching purchases and sales, avoiding stranded taxes. LNG used in petrochemicals incurs no VAT. Including NG in GST could boost GAIL’s EBITDA by about 2 percent, barring mandates to pass savings to OMCs, estimated Jefferies.

Gujarat Gas: The brokerage noted that the 6 percent VAT on NG sold in Morbi if subsumed under GST, would improve GUJGA’s competitiveness to propane by ₹2.5/kg at current prices. If passed on, this would improve volumes; if retained, it would improve margins, and forecast the brokerage.

Petronet LNG: Jefferies further pointed out that the improved competitiveness of NG, if GAIL passes on the $ 0.8-0.9/ mmbtu benefit, should drive volume growth, aiding PLNG’s LNG volumes. It expects such benefits to accrue gradually over the medium term.

Overall, the brokerage noted that VAT rates for CNG are currently 0 percent in Delhi, 3 percent in Mumbai, and 5 percent in Gujarat. If CNG is included under GST, CGD players are likely to pass on the benefits to consumers. This could widen the price gap with petrol and diesel, potentially boosting volume growth marginally, it predicted.

While GAIL has given multi-bagger returns in the last 1 year, rallying 105 percent, Petronet LNG and Gujarat Gas gained 40 percent and 31 percent, respectively in this period. Meanwhile, in 2024 YTD, GAIL jumped 37.5 percent in 2024 YTD whereas Petronet and Gujarat Gas advanced 45 percent and 36 percent, respectively.

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The center has ramped up coal production over the last decade to adequately address power demand according to G Kishan Reddy, newly appointed Union Coal and Mines Minister. Addressing journalists after taking charge, Reddy said the promises spelled out in the Bhartiya Janata Party’s election manifesto will be achieved in the coming five years.

“India was reeling under coal shortages a decade ago,” he said while adding that this was leading to power cuts in the country as well.

“Farmers, industries, and domestic consumers were pained due to these issues which have been adequately addressed in the past 10 years of Narendra Modi’s governance. There is adequate power and coal availability in the country today,” Reddy said.

According to Reddy, the BJP’s manifesto for the general election of 2024 will guide governance for the coming five years.

Securing mineral resources for India, developing mining, processing, and related technologies while prioritizing sustainable development practices figure in the party manifesto. Besides this, the BJP has also targeted institutionalizing recycling mandates across sectors to maximize mineral recovery from used products.

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For June 13, 2024, the outlook for the Indian share market is cautiously optimistic. Key indicators and expert analysis suggest a mix of potential growth and volatility.

Market Trends and Key Indicators

1. Nifty 50 Performance:
   • Recent volatility saw the Nifty dropping significantly but then rebounding strongly. It ended the previous week on a positive note, with technical indicators showing a dragonfly doji pattern on the weekly chart, which often signals the end of a correction phase​​.
   • The index is holding above key moving averages (9, 20, and 50 DMA), and the daily RSI remains steady around 59, indicating a stable momentum with a slight positive bias. Support levels are at 22,500 and 22,400, while resistance is expected around 23,620 and 23,800​​.
2. Sectoral Performance:
   • IT stocks led the gains, rising by 8.60%, while Public Sector Enterprises (PSE) saw a decline of 2.04%​​.

Economic and Regulatory Factors

1. Growth Projections:
   • India’s GDP growth is projected to moderate to 6.8% in fiscal 2025 from the higher growth rates seen in previous years. This moderation is partly due to the continued transmission of rate hikes by the Reserve Bank of India and regulatory measures affecting credit growth​​.
   • Despite the moderation, India is expected to retain its position as the fastest-growing large economy, driven by continued disinflation, normal monsoon predictions, and a gradual pickup in private-sector capital expenditures​ .
2. Market Sentiment:
   • Market sentiment is supported by cooling volatility, as indicated by a significant drop in the India VIX from 31.71 to 16.88. This suggests reduced fear and uncertainty among investors​​.

Technical Analysis

• The Nifty index’s formation of a dragonfly doji and its positioning above key moving averages suggest that while short-term corrections are possible, the overall trend remains bullish. Traders should watch the support and resistance levels closely and be prepared for potential sideways movement with a positive bias​​.

Conclusion

Overall, the Indian share market on June 13, 2024, is expected to navigate a mix of stabilizing technical indicators and moderating economic growth. Investors should stay informed about sector-specific movements and broader economic trends to make well-informed trading decisions.

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What is RBI’s Monetary Policy?

The Reserve Bank of India’s (RBI) monetary policy is a critical tool used to manage the country’s economy. It involves the regulation of money supply and interest rates to ensure economic stability and growth. The primary objectives of the RBI’s monetary policy are to:

• Maintain price stability
• Ensure adequate flow of credit to productive sectors
• Support economic growth

Frequency of Monetary Policy Releases

The RBI’s monetary policy is reviewed and released bi-monthly, meaning every two months. This schedule allows the central bank to respond effectively to economic changes and developments. The policy decisions are made by the Monetary Policy Committee (MPC), which consists of members from the RBI and external experts.

How Does RBI’s Monetary Policy Affect the Market?

The RBI’s monetary policy decisions have a profound impact on various aspects of the economy and financial markets:

• Interest Rates: Changes in the repo rate (the rate at which the RBI lends to commercial banks) directly influence borrowing and lending rates in the economy. A reduction in the repo rate typically leads to lower interest rates, encouraging borrowing and investment. Conversely, an increase in the repo rate can lead to higher interest rates, discouraging borrowing and reducing inflation.
• Inflation Control: By adjusting the money supply and interest rates, the RBI can control inflation. High inflation erodes purchasing power and can harm economic stability. The RBI aims to keep inflation within a target range, ensuring price stability.
• Currency Value: Monetary policy decisions can affect the value of the Indian Rupee. For instance, higher interest rates may attract foreign investment, strengthening the Rupee. Conversely, lower rates might lead to a weaker Rupee.
• Stock Market: Interest rate changes can influence stock prices. Lower interest rates generally boost stock markets as borrowing costs decrease and consumer spending increases. Higher rates can have the opposite effect, leading to reduced spending and investment.

Why Do Traders Avoid Taking Fresh Trades Before RBI’s Policy Announcements?

Traders and investors often avoid taking fresh positions in the market before the announcement of the RBI’s monetary policy for several reasons:

• Uncertainty: The period leading up to a policy announcement is often marked by speculation and uncertainty. Market participants prefer to wait for clear signals from the RBI before making trading decisions.
• Volatility: Monetary policy announcements can lead to significant market volatility. Prices of stocks, bonds, and currencies can fluctuate rapidly based on the policy’s content and the market’s reaction. By avoiding new trades, investors minimize their risk exposure during these volatile periods.
• Strategic Decisions: Traders need to align their strategies with the anticipated direction of monetary policy. For example, if the RBI is expected to cut interest rates, traders might prepare to invest in interest-sensitive sectors like real estate and banking. Waiting for the official announcement allows them to make informed decisions.
• Market Sentiment: The overall sentiment in the market can shift dramatically based on the RBI’s policy stance. Positive or negative surprises can lead to sharp movements, and traders prefer to wait and gauge the market’s reaction before committing to new positions.

Conclusion

The RBI’s monetary policy plays a vital role in shaping the economic landscape and financial markets in India. Understanding its implications and timing can help traders and investors make better-informed decisions. As highlighted by Eqwires Research Analyst, staying updated with the RBI’s policy announcements is crucial for navigating the complexities of the market effectively.

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