Populist Budget likely! Top 4 factors which are likely to move Indian markets in 2018

While the tangible benefits of structural reforms of formalizing the economy will show over time, government’s fiscal policies have been in the right direction and are helping the economy to remain robust.

   

In India, the disruption caused by a multitude of reforms was evident in slow GDP growth, impact on the MSME sectors and job losses.

While the tangible benefits of structural reforms of formalising the economy will show over time, government’s fiscal policies have been in the right direction and are helping the economy to remain robust.

Additionally, various reforms at the ground level prompted India’s significant rise in the World Bank’s Ease of Doing Business 2018 report uplifting the global investor community’s perception of India.

1) Credit offtake to gain momentum

The roll out of the public sector bank recapitalisation plan in 2018 should spur the credit offtake to corporate entities and MSMEs, which had slowed down substantially.

Whilst this will facilitate banks to clean up their balance sheets, it will also enable them to ride the recovery in credit cycle led by a gradual revival in the private investments cycle.

With robust growth in retail credit, I expect the wholesale credit growth to recover to early teens in 2018-19.

2) Infrastructure thrust to boost job creation

Government’s focus on reviving government capex and removing the stumbling blocks by resolving land acquisition, arbitration issues etc has helped construction companies struggling with stressed balance sheets to improve their order book position.

Considering the forward and backward linkages associated with the infrastructure sector, an increase in infrastructure spending will boost construction-related industries like cement, steel etc. Needless to say, the cascading impact on consumption growth led by the resultant job creation is tremendous.

3) Consumption growth to remain buoyant

India’s economy will continue to be consumption-led and will be backed by gradual job creation across income classes, normalisation of monsoon in past two years, support from crop insurance, adjustment of wages under the 7th pay commission and the continuing wave of populist government measures like farm loan waivers with general elections in sight in 2019.

4) Real estate sector to see an uptick

The residential real estate which has been suppressed for some years now will start seeing an uptick in demand mainly in the mid-income and affordable housing segment led by government incentives and improved consumer sentiment.

I expect prices to stabilise which have been on a downward trajectory for a while. While income yielding assets like IT/Office space will continue to maintain momentum, the warehousing/industrial space segments are likely to make a comeback with the government’s recent grant of infrastructure status to the logistics industry and continued focus on its ‘Make in India’ initiative.

However, we should not lose sight of the emerging headwinds like a potential shock from the crude oil prices, related inflationary pressures and hardening of interest rates.

Also, the results of the recent Gujarat elections may prompt the government to go for populist measures with general elections in sight in 2019. All these factors can disturb the fiscal deficit.

Hence, it is imperative to address the fundamental issues of Indian agricultural sector rather than doling out immediate and short-term benefits.

MORE WILL UPDATE SOON!!