Since the beginning of Samvat 2072 (Hindu Calendar), benchmark BSE Sensex has risen around 8 per cent on the back of expectation of robust monsoon, 7th Pay Commission salary hike and sustained liquidity inflows from foreign institutional investors. Other factors such as the passage of GST, global cues and US Fed rate hike decision also gave direction to markets since Diwali last year. Now, the Samvat 2073 is going to start soon and investors should zero in on the below factors which can give direction to equity markets for the next few quarters:
US Elections: The outcome of the US elections slated to take place early November will have repercussions on the World markets, India included. While it’s difficult to predict the exact impact that the results will bring, it is believed that India may not get affected adversely, considering the favorable ties it maintains with the US. There could be sectoral impact based on policies that get framed. However, it’s believed that the effect will not play over the long term considering the strong macro-economic conditions that prevail.
Fed rate hike: The US Fed is widely expected to raise its Fed Fund Rate this year. Although this action is thoroughly discounted by the markets, traders have priced in a very small chance that this rate increase be done in its next meeting on November 1-2, given that it is 6 days from the Presidential Elections. If the hike, which is likely to happen during its December meet is small and gradual, the negative effect on the economy will be minimal but the Fed may be forced to raise interest rates faster considering inflation being at lower levels and the jobs data showing full employment which may trigger a recession of sorts.
Earnings Season: The results of a few major companies such as Bharti Airtel, IOC will be announced in the coming days. Good earnings help in improving the fundamental picture which will have an impact on the movements of the markets in the coming weeks.
Influence of the Global economy: After a wobbly start to the year, China’s economy has stabilized due to easy-money policies and a wave of infrastructure projects. This puts China on track to meet its 2016 growth target of 6.5% to 7% but these policies to prop up growth are likely to fuel debt and overcapacity and delay much-needed reforms.
The Italian government has announced that a much-anticipated referendum on constitutional reform is to be held on December 4th. Positive outcome will give more power to present government to implement reforms which are anticipated to benefit its economy. In the current state, Italy is a weak link; it has debts of 132.7% of GDP and a banking sector weighed down by bad debts after years of sluggish growth. The failure of this referendum may push Italy to consider option to exit from Eurozone which may have a bearing on the world economy.
(The author is chief operating officer, Zerodha)