Five factors that could dampen the market sentiment
When the year 2014 came to a close, the general consensus among all market experts was that the Indian markets were in a “sweet spot” as compared to their global peers, and that Indian markets would be gaining rather than falling over the medium to long term. However, despite the interest rate cuts that have been coming in and low commodity prices, performance by Indian industries has not been up to the mark as is evident from the poor earnings numbers where there have been more disappointments than cheer.
With the near term picture looking bleak, investors seem to be losing patience as they find that the impact of much touted economic recovery has not been that great. It is however fair to state at this point that the real recovery would pan out only over the next year and a half, given the fact that the consumption theme is still playing out and the green shoots are visible even amid disappointing numbers. The Government too has increased expenditure in a number of sectors, that bodes well for investments. However, it is being widely acknowledged that there are certain risk factors that could spoil the party for the Indian markets. Here is a list of five things that we believe could dampen the market sentiment.
Loss of the BJP in the Bihar elections
Bihar is a large and politically sensitive battleground that may make or break the aura that has been built around the BJP led NDA Government. A loss for the BJP in Bihar would be a disappointment because the market has believed that a victory for the BJP means a reinforcement of the popularity of policies of the Central Government. If the results favour the Lalu- Nitish grand alliance, the opposition would get a shot in the arm and launch a series of fresh attacks on the Government, thus derailing its reform procedures.
Further delay in the implementation of GST
The Goods and Services Tax (GST) reform is something that the markets have been waiting for the longest time. GST is expected to rationalize the tax structure for Indian companies by subsuming all indirect taxes such as the value added tax, octroi, entry and the luxury tax. But there is still no definite timeline for the passage of this bill. While the NDA Government has been issuing statements saying that the passage of the GST Bill is only a matter of time, The Congress party is opposed to it, as it does not want the Governemnt to impose the additional 1% tax over the above the prescribed rate for the pan India levy of the GST. While the NDA believes that the additional 1% is essential for certain states to be able to move to a pan-India tax regime, the Congress party remains unwilling to resolve the differences and even talk about the conceptual differences in the Bill at this point of time.
Slump in the IPO market
Over the past few months, there has been some action in the primary markets, with companies firming up their expansion plan. As encouraging as this sounds, a sharp downturn of the secondary markets could discourage this trend, as companies would want to shelve their plans till market sentiments improve. This would of course spell bad news for them as they would be unable to reduce their debt through equity offerings.
The Chinese economy
The slowdown in China has been thought of as an opportunity by some for Indian exporters to expand their reach offshore. The softening of commodity prices has also benifitted India as it is largely an importer of commodities. The flipside of this however, is the increase in exchange rate volatility if China continues to devalue its currency in a bid to boost its exports. This could hurt the India- China trade balance that is already adverse and will also increase stock market volatility for India.
The debate over intolerance
The market does not usually talk about social factors that have political repurcursions. But in recent times, there has been a growing debate about inequality and religious intolerance that has now taken centrestage with the intellectuals returning national awards over the same. Over the past two months more than 40 literary luminaries have returned their awards and strongly opposed religious attacks, and more importantly the BJP led NDA Government’s mild reaction to such atrocities in the name of religion. Some market experts believe that this social movement is fanning an undercurrent of discontent among investors, who may begin to doubt the prospects of economic development in a nation where the country is divided over religious issues.
These are the factors that may derail the progress of the economy and thus ruin market sentiment in India.
