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Budget, earnings trends to drive market in the early part of 2018

By DK Aggarwal

Calendar 2017 is bidding adieu to the India..

By DK Aggarwal

Calendar 2017 is bidding adieu to the Indian stock market after pushing the major indices higher by about 28 per cent. The midcap and smallcap segments of the market were the strongest performers with BSE Midcap and BSE SmallCap indices rising by about 47 per cent and 58 per cent, respectively.

The tangible benefits of the structural reforms introduced by the government so far have started bearing fruit and the testimony to the same was the 6.3 per cent GDP growth witnessed in the September quarter after a decline for five consecutive quarters.

Building confidence among the market participants, the domestic market regained its status as one of the most favoured destinations for foreign investors, who were on the sell side during August and September. Actually, the euphoric sentiment among corporates on account of an improvement in the 'ease of doing business' ranking coupled with the government showing dedication in speeding up development and economic reforms before going into the general elections in 2019 boosted sentiments of market participants.

During 2017, domestic institutional investors put up a remarkable performance and invested nearly Rs 1,150,23 crore in the domestic market. The influence of the domestic institutional investors on the Indian stock market has increased more than ever before, and this indicates that they hold a promising future for themselves.

Domestic liquidity is supported by the dedicated money flowing into mutual funds each month through systematic investment plans since demonetisation. To note, foreign portfolio investors (FPIs) have invested to the tune of Rs 50,000 crore so far in 2017, the highest in three years after Rs 20,568 crore in 2016 and Rs 17,808 crore in 2015. However, there was an expectation that we may not see a gush of FPI flows as withdrawal of liquidity and rate hikes in developed economies are expected to pick up. In the meantime, major global central banks such as US Fed, ECB have already started balance sheet normalisation.

As we enter the New Year, two key drivers are creating an upward bias in the market; improving global growth as both advanced and emerging economies enjoy a synchronised upturn and the continuation of accommodative monetary policies.

The euro zone, Japan, the US and a number of emerging markets are experiencing better growth. A strong economic recovery, sufficient liquidity as well as contained inflation across the globe will continue to support global markets.

Back home, the macro risk is certainly predominant as crude oil prices firm up in global markets, and they are likely to cast a shadow on retail inflation, leaving no room for RBI to go for interest rate cuts. The forthcoming Union Budget and India Inc's earnings recovery are crucial factors, which will drive the market trend. Now, the government may try to give shape to the initiatives taken in last two years.

In the forthcoming budget, the government is expected to stay more focused on farmers, job creation and infrastructure building while making all attempts to follow a fiscal prudence path.

Original Article


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