It has been an excellent year for Sensex and Nifty so far, with the equity benchmark indices returning nearly than 25% since January. While, the general trend for the markets has been upward, Sensex lost more than 2% in the last one month. As we come to the end of financial year, top market expert Sandip Sabharwal of asksandipsabharwal.com says that 2018 should be very good for both topline and profit growth for the Indian corporates. “2018 will be a good year for risk assets globally driven by strong economic recovery, sufficient liquidity as well as contained inflation,” Sandip Sabharwal told in an interview to FE Online. Before we move on to 2018, there are a few key events in December-17, which will be crucial to the Indian markets.
Gujarat election and outcome for both Gujarat and Himachal Pradesh
The outcome of the Gujarat Assembly elections will be closely watched by the market participants. It is scheduled to be held in two phases on December 9 and 14, respectively, the Election Commission (EC) announced earlier this month. Counting of votes will take place on December 18. “Gujarat has a large business community, which has been impacted by demonetization and GST. Along with this, the anti-incumbency is also likely to weigh against the current government. So outcome is expected to be crucial as it is likely to test the popularity of the existing government. Any negative outcome is likely to have a strong bearing on other states such as Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh, where elections will be held before the 2019 Lok Sabha elections,” Kotak Securities said in a report.
RBI policy meeting
It will be interesting to note RBI’s stance with regard to policy rates, especially after global research firm Fitch made a strong case for rate cut. The Reserve Bank of India looks set to keep its policy rate on hold on Wednesday, after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus. “WPI increased sharply in October on the back of a spike in vegetable and fuel prices. We expect WPI inflation to remain at similar levels going forward. Further rise in the crude prices would leave very little scope for RBI to cut rates in the upcoming meeting. RBI is likely to factor in (1) risks of fiscal slippages, (2) continuing pass-through of the center’s HRA impact, (3) higher crude oil prices, and (4) adverse base effects in its next policy meet to decide further action on rate cuts,” said Kotak Securities.
Winter Session of Parliament
After the Winter Session of parliament which has been postponed due to the ongoing Gujarat election campaign, all eyes will be on the government’s actions. “With this being the last Budget of the government, it is important to see whether government will seek to consolidate fiscal deficit while boosting growth via encouraging public capex or will it go for populist measures. Apr-Sep deficit stood at 91.3% of the budget estimates and rising fiscal deficit at this stage could continue to exacerbate inflation and current account deficit. We believe that in the coming months, government will be looking for revenues to meet the deficit target of 3.2%,” Kotak Securities notes in its report.