Nifty 50 may be at bubble zone at 25K levels; TTM PE over 30

·         Although NSE shows FY24 and Q1FY25 TTM EPS around 1051 and 1075 respectively, the actual calculated value should be around 831 and 822 for Nifty

·         As per NSE calculation/website, the FY: 20-24 Nifty EPS is 391, 555, 809, 858, and 1051, while as per our calculation, the same should be 407, 494, 700, 652, and 831 (assuming same NIFTY constituents as currently)

·         At present, Nifty should hover around the 20000/22000-25000 zone (assuming the estimated Nifty EPS for FY25 is around 1000 and fair/bullish PE 20/22-25)

 

India’s benchmark stock index, Nifty closed around 24698.85 Tuesday (20th Aug’24), surged +0.51% on positive global/US cues amid hopes & hypes of an early Fed pivot and Gaza war ceasefire. Domestically, India’s Dalal Street was also boosted by hypes of an upbeat report card by BJP/NDA 3.0 under PM Modi’s leadership in the forthcoming crucial state elections in HR (early Oct’24), J&K  (late Sep’24) -already announced followed by MH, JH, DL and BR in late 2024 to early 2025 (yet to be announced).

All is not well for Modi 3.0 minority government

In this way, Modi-led BJP/NDA is clearly on the back foot in all these states and all over India due to various incumbency factors and infighting within BJP/RSS about Modi’s dictator-like leadership, while the opposition IND is in clear lead led by the growing popularity of LOP Rahul Gandhi (INC). But similar to the recent General election, Modi savvy ‘Sarkari Godi media’ (mainstream TV media) is already doing various fake opinion polls, showing Modi-led BJP/NDA is in a very strong position to win almost all these six states (including J&K UT) comfortably (alone/coalition) to form even governments.

Although, the government/ECI was supposed to announce elections in MH and JH, but delayed due to various fussy (laughable) reasons as BJP/Modi is still trying its best to consolidate its political position in these states. BJP/NDA is set to lose big in all these six states if the election is held fairly by the next few months and opposition IND led by INC could act more prudently without any act of overconfidence.

At present, BJP/NDA is short of a majority in India’s upper House (Senate-Rajya Sabha-RS). BJP now has 86 seats and NDA 101 seats, against a simple majority mark of 113 in the 245-member RS (currently 225 members). On the other side, the opposition bloc IND has 87 seats in the RS led by INC (26), TMC (13); and 10 seats each by AAP and DMK. The lack of a simple majority of its own for BJP in both LS (Lok Sabha-Lower House) and RS is preventing Modi 3.0 from passing some recent politically controversial bills/laws, while also forcing to dial back even some economic policy/tax modifications introduced in the budget (like LTCGT on real estate with indexation benefit). Thus upbeat results in all these state elections as well as 10 seats in the UP by-election are crucial for Modi 3.0 to regain majority in RS for the timely passage of all bills/legislation in the country (without opposition consent).

Modi 3.0 is also trying its best to bring some allied/opposition MPs into BJP through ‘Operation Lotus’, although still now it’s still not successful. In brief, winning or even an upbeat report card in all these state elections is crucial for Modi 3.0 to consolidate its power and control/hold over the government and party (BJP/RSS) to continue for the full term.

But the overall stance and body language of Modi and Shah indicate that all is not well within Modi 3.0 and Modi may take a graceful exit from electoral politics on BJP’s 75-year retirement age by Oct-Dec’25. In that scenario, the top three contenders for the next PM under BJP 3.0/NDA 3.0 would be Gadkari (backed by RSS/MH lobby), Rajnath Singh (UP/North India belt) and Shah (Gujrat lobby). But considering all the pros & cons, moderate Gadkari may be the most favorite PM candidate in the minority BJP government after hardliner Modi (after 2025-26 or even 2029).

Overall, Nifty recovered almost 1000 points from a recent low of around 23893.70 (after scaling 25030.95 soon after the budget); then Nifty stumbled on the concern of regulatory tightening and the threat of Iran's attack on Israel. Nifty still lost around -1.00% in August (till 20th) after gaining almost +11% in June & July on hopes of political & policy stability under Modi 3.0 and a blockbuster budget. Although the July budget for FY25 (final) may not be termed a blockbuster, it was not harmful either, especially after the abolition of the Angel Tax and the introduction of the FNO tax. Over the last ten years, India’s Nifty was boosted by not only Modinomics optimism and the appeal of 6D (Demand, development, demography, digitalization, deregulation, and democracy) but also Nifty earnings (EPS) and political & policy/macro stability.

India’s Nifty may now be a bubble zone if we calculate EPS properly

 

If we consider NSE calculation, the present TTM (Q1FY25) Nifty EPS is around 1076 at TTM PE 22.95, while calculated Nifty TTM EPS should be around 822 (as per index weightage ratio) and in that scenario, the TTM PE of Nifty is currently above 30, extreme red/bullish/bubble zone. Also if we consider individual stocks (constituents) under Nifty, most of them are in the extreme bubble zone (sky-high PE ratio, much more than their present or potential earnings/EPS growths).

At Q1FY25 TTM EPS is around 822 and a fair PE range of 20/22-25, Nifty should hover around 16500 (bear zone)-18100 (fair value), and 20500 (bullish zone). Even if we consider the equal weight of all Nifty index constituents, the TTM EPS should be 903 and in that case, the fair value range should be around 18000/19000-22600!

 

 

Conclusions:

As per NSE calculation/website, the FY: 20-24 Nifty EPS is 391, 555, 809, 858, and 1051, while as per our calculation, the same should be 407, 494, 700, 652, and 831 (assuming same NIFTY constituents as currently). Accordingly assuming a fair PE of 20 (against average EPS growth of 15-20%), the fair value of Nifty should be around 19944 for FY25 (projected EPS 997); 23933 for FY26 (projected EPS 1197), and 28719 (projected EPS 1436).

As the financial market usually discounts one year EPS in advance, the current fair (neutral) value (wholesale) of Nifty should be around 20000 (~19944) at a median PE of 20, while bubble/bullish (MRP) zone may be around 25000 (~24930) and panic (bear) zone (distributor price zone) may be around 15000 (~14958). At present, Nifty should hover around the 20000/22000-25000 zone (assuming the estimated Nifty EPS for FY25 is around 1000 and fair/bullish PE 20/22-25).

Technical trading levels: Nifty Future

Whatever may be the narrative, technically Nifty Future/ India 50 CFD (24690) now has to sustain over 24850/25000*-25100/25200* for any further rally in the coming days; otherwise sustaining below 24800 may again fall to around 24650/24500-24400/24300* and 24000/23700-23300*/23000 and further to 22800/22600*-22300/21800/21300* and further to 21150/21000*-20400/20000* in the coming days.