Indian equity markets saw a lot of turbulence end of the last year owing primarily due to the demonetization drive on the home front and the unexpected Donald Trump win in the US. After being directionless for some time, the markets have now taken on positive global and domestic cues and Nifty recently hit its all-time high. I was bullish all through 2016 and feel there is still time to take the plunge, as the future looks even more promising.
Let us look at 5 factors that would drive the markets, and can take the indices to new highs:
Political stability in the US
Now that Mr Trump has been sworn-in as the President of the United States, the uproar over his candidature and then the demonstrations against his win have abated. People are now looking forward to the policies he is going to implement and the foreign relations he would build (or destroy).
If one were to look at the performance of the US Equity Markets (Dow Jones Industrial Average, S&P 500, and the Nasdaq), the DJIA has risen over 2,000 points since the announcement of the election outcome. Recently, Nasdaq set-up new highs almost every day. In response, the markets globally have also breathed a sigh of relief and believe Trump may not be as bad as he was thought to be. In fact, the Indian Markets are looking strong on the charts that many traders and investors follow.
The Indian Markets have received a major share of the Foreign Investments for long, and that is only expected to get better, thus pushing up the stocks even further.
Demonetization Behind Us
The markets took a beating when PM Modi suddenly announced demonetization of all Rs 500 and Rs 1,000 notes in circulation. The result was chaos all around since India has primarily been a cash-driven economy. However, within just a couple of months, the new notes made their way to most of the people who were suffering from the cash-crunch and the whole situation seems to have been forgotten now.
Going by the results of the quarter ending December 2016 for NSE or BSE listed Companies, many still beat the consensus estimates and have given a strong outlook. This means one can safely take long positions and make a good return in the medium-to-long term, though there might be hiccups on the way since the markets have had only one way run in the recent months.
The passage of the Goods and Services Tax (GST) bill is expected to contribute about a percentage point to India’s GDP in the next 3-5 years. It is going to hugely benefit the economy since tax rationalizing on multiple fronts will reduce compliance costs for the firms. Specifically, the GST will lead to a common market, as against the (current) fragmented one with separate center and state levies and will give a huge boost to the Make in India campaign by addressing the cascading of taxes, inter-state tax and high logistics costs. In addition, the tax credits will encourage suppliers to pay taxes rather than avoiding them.
Touted as the biggest tax reform ever in India, the GST is supposed to be rolled out from July 1, 2017.
In the Union Budget for 2017-18, the Government took a slew of measures that would provide a thrust to many sectors of the economy. These came in the form of higher capital expenditures on the rural and agricultural sectors, which form the backbone of our country. Positive steps were also taken to ensure affordable housing, creation of infrastructure and digital economy.
Overall, the budget was market and growth-oriented. And the results are already showing up if one were to look at the returns some stocks have given since then.
Positive Investment Climate
The Finance Ministry (in the budget) gave a big push to the ease of doing business by promising to simplify labour laws, abolishing the Foreign Investment and Promotion Board (FIPB) as part of the fiscal reform, and extending the tax reduction to MSMEs (by 5 percent). The impetus would more than negate the downside of the demonetization effects that were witnessed by various sectors.
Adding further to the optimism are the GDP numbers for the Quarter ending Dec ’16, that came in much higher than expected at 7.0%, showing that the economy is surprisingly resilient. This ensures that India is still the fastest growing major economy in the world.
Moreover, there are a few other factors too that would provide impetus to the markets. These include the recent Interest rate hike in the US which passed off as a non-event on the domestic front and the thumping win of BJP in the largest state of India. In addition, RBI could bring down the rates adding fuel to the uptrend.
All in all, I view the markets to perform well in 2017 and there is money to be made in select sectors and stocks with strong fundamentals.
The views are personal, and any recommendations inferred should be followed-up with a proper research before investing.
Alok is an Engineer (Gold Medalist), MBA in Finance from IIFT, and FRM certified. He has worked with many renowned Investment Banks in the US. He also writes at alok-singhal.com
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