From Raghuram Rajan's exit from RBI to Brexit, the year 2016 had been a financially eventful one, and 2017 is likely to come with its share of ups and downs too. While some are predictable, some are not. Nonetheless, what an investor looks for is safe and sound returns from his investments. Here are some global and domestic events that investors should watch out for this year.
Union Budget 2017
The Union Budget 2017 is coming at a time when the consumer demand is dampened by demonetisation and citizens are still facing cash crunch. With eyes set on increasing rural demands, the NDA government is likely to come up with some tax relief to encourage spending and investment in the ecosystem. Small and medium-size investors can expect significant tax benefits. Since digitisation and going cashless have been in the mind of the government for some time, schemes to promote financial inclusiveness and investment towards cashless assets are on the cards. The government may further tighten up the noose on cash transactions. The realty sector is likely to get a push this time to keep in line with the vision of “Housing For All” campaign.
The Trump presidency begins
Donald Trump is about to take the Oval Office as the 45th President of the United States. And his policies, be it on infrastructure, immigration or protectionism, the world could be in for a turbulent ride. This could in turn prompt the Federal Reserve to take a tough stand by increasing interest rates. A move to hike the
rate could make the dollar stronger against the Indian rupee, consequently promoting exports from India. The Indian service industry, including IT, is likely to benefit from this. However, what could be a matter of concern for the Indian IT industry is Trump's view on the use of H1-B visa for IT professionals, which is in alignment with his promise of creating secure jobs for Americans.
Impact of demonetisation
Business and industrial activities have slumped due to the liquidity crunch following demonetisation in the Indian economy. The drop in public spending has led to negative corporate earnings. While the remonetisation process is still in progress, the government is expected to continue pushing towards cashless transactions in the coming days.
The interest rates have dropped heavily with the banking sector sitting on huge cash deposits after the demonetisation. They are expected to slide further later this year. Investors looking for fixed income or interest income may need to shift focus from bank FDs and postal saving schemes to commercial papers for higher return. Post-demonetisation, the investment focus on realty, equity and mutual fund schemes is skewered. Gold has lost some of its shine and it is expected to remain subdued this year with the dollar value strengthening gradually.
Assembly elections
Uttar Pradesh, Punjab, Goa, Uttarakhand and Manipur are among the states that would be undergoing elections in 2017. The election results would reflect the popularity of the policies of the central government. If the BJP wins these states, it will get a much solicited majority in the Rajya Sabha. With this, economic reforms would gather momentum. On the other hand, the BJP losing the elections could mean a slowdown or reversal of policies.
Implementation of GST
Shift in the timeline of implementing GST is likely to impact investor sentiment. The revised deadline of April seems unachievable. The Central and state governments are caught up in a deadlock at the moment over dilemma regarding dual control and issues such as certain states demanding a higher revenue share to compensate for losses due to demonetisation. It can only roll out in June or July. Foreign investors are also closely awaiting development.
Crude price rise
Crude import requires huge currency reserve to go out every year. After trading at historically low levels in the past few years, crude prices have finally started surging, and if they cross the $60-$70 mark, the impact would be severe on the Indian economy. After all, India is highly dependent on oil for basic production. With Opec coming into an agreement with Russia on cutting oil output, crude prices are expected to remain strong in the first half of 2017. However, the agreement is only a short-term arrangement and a fallout could beat the oil price in the long run.If the crude price remains high, the government would have to rethink its investment plans around infrastructure and housing.
Implementation of real estate regulations
Home buyers and investors have been awaiting the implementation of RERA for a long time now. The Act is going to be beneficial for buyers, the builders and the housing sector as a whole as it promises more transparency and competitive pricing. It is expected to boost investment in the real estate sector after the lull that has been there for the last couple of years. States such as UP, Chandigarh and Gujarat have been notified with the RERA draft rules. In 2017, all the states across the country are expected to implement the Act.
Other important events
Other than the major events mentioned above, there are a few other factors that could move the markets in 2017 such as the possibility of continuation in China’s slowdown. It could urge foreign investors to divert funds to emerging markets such as India. The reform bills that are awaiting government clearance such as an amendment to the RBI Act, banking reform and labour reform could also trigger market movements.
(The writer is the CEO of BankBazaar.com)
