2017 has been an eventful year for the world’s 4th fastest growing economy, India
The year started with the economy reeling under the note ban move, which was a bold move against black money and terror funding. Initially it hampered the routine of the country; putting breaks on the growth, infrastructure and crushing consumer demand but after a year everything is almost back on track. It can be said that demonetization has managed to cripple terrorism along with a start of new era towards digitization and lakhs of taxpayers were added in the Government’s list. However, almost after a year to demonetization cash transaction has risen over the period with the availability of cash to the people but the country is slowly but steadily realizing the benefits of digital payments.
As, the Indian economy was trying to cope with the demonetization shocker, the Government’s decision to roll out the Goods and Services Tax from July crippled it even further. The GST is the biggest tax reform in India after 1947 and has brought in ‘one nation one tax’ system. It is expected to provide the much needed stimulant for economic growth in India by transforming the existing base of indirect taxation towards the free flow of goods and services. The tax rates under GST are set at 0%, 5%, 12%, 18% and 28% for various goods and services. Further as per the requirement the Government has taken initiatives and revived the GST percentage on around 200 items from 28% slab to 18% slab.
Indian banks received a considerable boost in October as the GoI approved Rs. 2.11 lakh crore recapitalisation programme for the public sector banks (PSBs). In the last few years the increasing non-performing assets or bad loans plagued a significant chunk of the country’s state-owned banks but this infusion could improve the balance sheets of PSBs.
GoI’s initiatives including ‘Make in India’ programme has earned some fruits as India rose 30 places in the World Bank’s – Ease of Doing Business Index 2018, to the 100th spot in 2017. Also, global rating agency Moody’s in November upgraded India’s sovereign bond rating after a gap of 14 years, from Baa3 to Baa2, i.e., changed its rating outlook from stable to positive. It will improve foreign debt inflows and in turn strengthen the rupee, instilling confidence in the economy.
It was a year for the ruling Bharatiya Janata Party (BJP) who won a two-thirds majority in Uttar Pradesh in March elections, followed by retention of power in Gujarat and taking Himachal Pradesh from Congress. This political stability would allow the Centre to push crucial reforms through states.
Geopolitical tension on the North Korean front dominated headlines through the year. The country reportedly tested hydrogen bombs to prove its capabilities to strike US, Japan and allies.
US Federal Reserve hiked interest rates for three times in a row to 1.5% in 2017.
Year 2017 was a bumper year for Indian primary markets, with as many as 38 mainline IPOs raising more than Rs. 75,000 crore. The central government was the biggest beneficiary of the IPO boom, given that several state-owned companies, including General Insurance Corp of India, New India Assurance, Cochin Shipyard, Housing and Urban Development Corp, went public.
There has been a rally in the crude oil prices in 2017 and the price rose above USD 65 a barrel for the first time since mid-2015. The OPEC Meeting concluded with the decision to extend the production cuts for an additional nine months until the end of 2018. Any spike in the price of crude and its derivatives hurts the finances and profit margins of importers such as India.
The Government unveiled the budget a month in advance to February 1 and the railway budget got merged with the Union Budget.
2018, bullish trend to continue with Macro data as key for the Indian markets
Union Budget - Upcoming Union Budget 2018-19 will be the first post-GST budget of India and also the last full budget of Modi-led NDA government before the 2019 general elections. Different sectors have high expectations for the much promoted economic reforms. The next budget is expected to be focused on improving rural economy and would be an ideal opportunity for the government to set its roadmap for alleviating rural distress.
The budget is expected to increase the 80C investment limit from Rs. 150,000 to Rs. 200,000 per year to encourage people to save more in financial instruments like national saving certificates, public provident fund, etc. Moreover any increase in tax slab would be an added benefit.
As promised by Finance Minister Arun Jaitley in FY15 budget, the government is expected to reduce the corporate tax from 30% to 25%. This demand has already been put forth by Corporate India in the pre budget consultation meeting. In addition there are pressures from the global economy that have already reduced the tax rate to around 20%.
The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport, prior to the general elections in 2019.
It is being expected that the Budget 2018 would be focused on rural population and farmers. Government would like to increase the funding for the farm and rural sectors in the budget and will try to boost the economic growth.
As pointed out by the Finance Minister, the budget will focus on creating employment and employment-related funding and opportunities, after a hit to low skilled jobs by GST and demonetization. According to media reports, the government is likely to provide India with its first National Employment Policy (NEP) to address the crucial issue of job creation.
Crude oil prices – From the demand perspective, crude oil demand has outstripped supply since the start of 2016 with Asia, Europe and the US being the biggest contributors to demand as global economic recovery has taken a strong foothold. Crude oil prices have reached almost three year high on account of geopolitical tensions in Iran, OPEC’s third largest producer; ongoing OPEC led production cuts and strong economic data from United States and Germany. However, its expected that there will be not much upside move in the prices of oil from here but will remain a matter of concern for the economies.
Fed Plans - The Federal Reserve projects three rate hikes and raised their forecast for economic growth in 2018. A lot depends on the ability of the US Federal Reserve to manage expectations.
Liquidity – Strong investments has come from domestic investors than the foreign investors which kept the upside momentum moving and same is being expected in the upcoming year.
Elections – Elections will dominate the most part of 2018, beginning with Nagaland, Tripura, Meghalaya and Karnataka voting in the first half of the year, followed by BJP-ruled states of Chhattisgarh, Madhya Pradesh, Rajasthan and Mizoram. The elections in these eight states will set the tone for the biggest electoral event — the 2019 Lok Sabha elections.
GST – An eye will be there on the GST collection and as the number of people filing returns going up, possibly there will be some degree of stability coming on the revenue.
Overall the investor’s sentiment is expected to remain positive as investors across categories remain highly expectant of an economic turnaround. The crux however lies in sticking to quality, where strong balance sheets, ethical managements and growth prospects should be the deciding factor.
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