Nikunj Gandhi gives a verdict on the financial aspect of 2017
As we approach the New Year and look forward to the evenings revelry, I can’t help reminisce the year gone by which seemed like a jiffy. If I were to draw a timeline on the economic events that had a significant impact on the Equity Investors, I would surely conclude that overall it was a very good year indeed! The indices have peaked at an all-time high and seem to be raring to go higher and break all previous records. The shareholders have seen their wealth maximised across major asset classes of investment. The sentiment is euphoric and refuses to cease in near future as we enter the New Year with a fresh fervour towards further wealth maximisation and higher market capitalisation.
We started the year waking up to a cash crunch post the surprise Demonetisation attack of the previous year that caught us all unawares. While we try to fathom the long-term benefits/consequences of this significant move in the history of the India’s monetary policies, it certainly had a short-term consequence on the stock markets and we saw a nose-dive below the resisting 26K levels. The liquidity crunch aggravated the situation and slowed down the investment process while we grappled for searching cash, which became a scarce commodity and hoarding it seemed the need of the hour.
The markets were further beleaguered by the execution of the surgical strikes against terrorists as it led to the further deterioration of the ties with the neighbours and an anxiety of a further war prevailing. The investors saw a massive erosion to their wealth and even the rupee was not spared from touching it’s all time high.
The positive sentiment was restored and the markets received a shot in the arm with the passage of the long-awaited GST bill, which was pending with the Rajya Sabha. The implementation of GST was a massive overhaul within the indirect tax regime of India and the positive sentiment was displayed by the markets by breaching the psychological 31K mark.
The capital infusion into the banks through the Recapitalisation Bonds to overcome the NPA problem brought a cheer to the banking sector and was instrumental in further lifting the indices higher. The plan entailed mobilisation of capital through budgetary provisions against government issuing recapitalisation bonds and the balance through raising of capital by banks from the market with dilution of government equity.
The positive response from the retail investors to the IPOs, FPOs, the disinvestment plans from PSUs, the Sovereign Gold Monetisation Scheme, helped in infusing the much-needed liquidity in the Primary markets.
With the influx of foreign capital, India is far from following the Decoupling theory. The global events do impact the movement of foreign investments and thereby affecting the market indices.
The year started with the surprise results of the USA Presidential elections where Trump prevailed over Clinton. Trump’s policies were coined Trumponomics which included some bold tax cuts for both personal and corporate taxes, restructuring bilateral trade deals and the controversial protectionist stance over border policies. The markets had plummeted initially, but the Dow has soared new heights over the year.
Another major event in the Europe Geopolitics was the Brexit, Britain’s historic referendum to exit from the EU followed by the PM Cameron’s resignation which brought about an impact on the currency markets. The slump was felt in the global indices where the Sensex took a beating too. It would take years to assess the impacts on international law, trade, finance, foreign policies before gauging whether this was a positive step for UK.
The European markets were boosted by the surprise win of the French President then incumbent Emmanuel Macron strengthening the investors’ confidence with the acceptance of the liberal policies adopted by the new president.
The surge in Bitcoins was a windfall for the speculators who displayed farsighted investment acumen. It was more or less akin to a lottery win for everybody who bought a ticket or hitting a jackpot from a broken slot machine.
The Federal Reserve’s tweaking (increase) of interest rates twice during the year is bound to impact the liquidity in the emerging economies. It shall be a cause of concern if the Fed maintains its hawkish stance and decides to proceed with further interest rate increases.
2017 has been a very profitable year for the investors across all asset classes, especially the equity investors since it was a fundamental growth across sectors. The euphoria is expected to continue as more retail investors follow suit by the lure of quick returns. It would be a challenge to see if 2018 continues to bring such cheer to the investors as we head towards uncharted territories from here. Let us not throw caution to the wind and focus more on the Valuations, rather than getting swayed by the supernormal profits that the markets have reaped over the year. For the long-term investor, this was a much-needed optimism to reclaim their faith and confidence in this asset class indeed!
(Nikunj Gandhi is an Equity Investor and can be reached at firstname.lastname@example.org. These are his opinions and not necessarily of the newspaper’s.)