MARKET OUTLOOK 2017. Reap the benefits of GST, demonetisation

A casual stock market observer will mark down 2016 as a nondescript year for the markets. The fact that the broader indices stayed flat would even disappoint a few. However, I think, 2016 has laid a solid foundation for the market’s performance over the next two-three years. The contributing factors to this thought are three key macro developments in 2016 — GST, demonetisation, and the unexpected victory of Donald Trump.

As the Good and Services Tax (GST) rolls out in 2017, it would be extremely interesting to see how this mammoth task will be implemented by the government. One has to discount the initial hiccups and implementation challenges, but over the long term, GST is set to change the course of the Indian economy.

Corporate India would benefit in multiple ways — from efficient inventory management, to unified taxation, easy compliance, and creating a common market place. All these factors will eventually bolster India Inc’s bottomline. As margins improve, so would the underlying performance of the stock prices.

Demonetisation and the clamp-down on black money came in as a pleasant surprise. Yes, it has caused inconvenience to many and has caused quite a dent to the economy on an immediate basis. It is an expensive affair, considering the cost of printing and the revenue loss in terms of direct and indirect taxes. By any stretch of imagination, India will need at least, a minimum of 12 months, if not more, to recuperate from this move. However, the benefits in the long term are far too many, especially for the stock markets.

Thanks to demonetisation, cash-flushed banks have already slashed fixed deposit rates, bringing in the post-tax returns to under 6.5 per cent. Do note, the biggest financial market in India is the fixed deposit market. However, with declining rates, we can expect a segment of fixed income market participants to venture into the stock markets.

Investors are most likely to take the mutual fund route to access the stock markets. This may not happen immediately, but give it another year or so and we will see this pan out. Whenever this happens, the markets will be awash with domestic funds, and hopefully, this will help us reduce the market’s dependence on foreign funds.

Finally, the victory of Donald Trump, could be a game changer. There is a gradual change in opinion, and many are turning optimistic. The expectation is that Trump, considering his corporate background, would take a pragmatic leadership approach. He could leverage the current low interest rate regime in the US to make stimulus spends in infrastructure. If this pans out, and the stimulus spends are meaningful, it would be good not just for the US economy, but for the rest of world as well.

(The writer is CEO, Zerodha, Bengaluru)