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5 Things That Will Impact Indian Shares in 2017
This year's prospects look just as challenging, with factors from the cash crunch to a stronger dollar looking likely to decide the fate of shares.
Here are five things that will shape the direction of markets this year.
1The cash crunch
The impact of a nationwide shortage of cash (http://blogs.wsj.com/
The disruption is already visible in sectors such as consumer goods, consumer durables, automobiles and real estate.
The government is unable to infuse enough new bank bills into the system as its printing presses are overburdened. Broker Motilal Oswal Securities expects it to take at least six months to issue notes worth 15 trillion rupees ($220 billion) to replace the high-value notes that the Indian government banned in November, even if all four of the country's currency printing presses operate 24 hours a day.
2 Weak corporate earnings
Indian corporates witnessed some recovery in their earnings until the fiscal second quarter that ended Sept. 30. However, the withdrawal of high-value bank notes has hurt domestic demand and delayed a recovery in corporate earnings.
"It will remain painful in the next two quarters," said Jay Prakash Gupta, director at Moneylicious, a Mumbai-based brokerage firm.
If the government increased individual tax benefits, some money would come back into the system through higher consumption and may help boost earnings, he said.
3 The Trump era
Donald Trump will take charge as U.S. president on Jan. 20 and investors are eagerly awaiting news on his trade policies, as well as his approach toward immigrant workers.
He may reveal stimulus plans to boost the U.S. economy and the dollar is likely to gain further against other currencies.
Developed markets, eight years after the global financial crisis, are in better shape than emerging markets. This may mean that more foreign investors take their money from emerging markets such as India, said Mr. Kohli of IndiaNivesh Securities. Such investors, who hold nearly a quarter of shares in India's Sensex index, sold $3.8 billion worth of stocks in November and December.
4 Monetary policy
A moderation in India's inflation over the past few quarters–on the back of lower global commodity prices and a decline in the cost of food–has helped India's central bank adopt an accommodative monetary policy stance.
Further easing by the Reserve Bank of India would be dependent on inflation remaining within its medium-term target range of 4% to 6%, said Kaustubh Belapurkar, director, research at Morningstar's India unit.
Mr. Gupta of Moneylicious expects the RBI to lower rates by 0.5 to 0.75 percentage points in 2017.
Investors will also be keeping an eye out for any incentives in the federal budget in early February that may provide a cushion against the demand slowdown.
5 Crude-oil prices
India–which imports nearly three quarters of its crude-oil requirements—
However, prices start to recover in 2016. The price of Brent, the international crude oil benchmark, rose 52% from a year earlier to trade at around $57 a barrel by December. If crude-oil prices breach $70 a barrel, this could pose a challenge to India's economy, said Mr. Gupta.