India N-abled: What lies ahead?

India has been able to obtain the Nuclear Suppliers Group (NSG) waiver, post Pokhran - 34 year nuclear trade embargo has ended. What are the ramifications of this historic achievement for the markets?

The way forward for India has been articulated by Dr. Manmohan Singh, the architect of this waiver: "We look forward to establishing a mutually beneficial partnership with freindly countries in an area which is important for both global energy security as well as to meet the challenge of climate change." It opens up business opportunities for technology flows for generating nuclear power in the country as well as export of technology from India. India has already established global leadership in research involving Pressurised Heavy Water Reactors (PHWR) and Fast Breader Reactors. India is exploring the possibility of exporting upto 220 MW reactors to developing nations interested in nuclear power generation. Private sector entry into nuclear power generation is possible only after Parliament ammends the Atomic Energy Act. However, private sector companies can supply equipment for nuclear energy as per existing arrangement. It is expected that in the long run i.e. by 2020, this deal will help India generate over 40000 MW of nuclear power.

The deal is positive for sectors such as Power, Defence, Engineering, IT, and Pharma research. How will the markets react?

• Short Run: The markets are expected to greet the deal with a gap up opening on monday of anywhere between 3-5%. The benefits accruing to certain companies will be visible only in the very long term (5-10 Years). If the rise is too swift, marked by excessive speculation, these counters should be used for profit booking in the immediate short term.
• Medium Term: The market looks good for a reasonable rise in the next few days, given the favourable economic data on inflation and commodity prices. The index has a potential to rise upto 15800 (NIFTY 4750) with ease. It can take the markets higher towards 16800 (NIFTY 5050), if liquidity improves and FIIs oblige. These levels certainly call for profit booking.
• Long Term: The deal is good for long term prospects of PSU power generation companies, and defence suppliers like BEL. Engineering companies like L&T may also benefit substantially, but their high PE multiples put a question mark on their already stretched valuations.

It is time to celebrate and we can expect some fireworks on our bourses. But don't be carried away in the euphoria!