India definitely shining
The Indian equity market (Nifty) delivered 19 per cent returns in FY17. This was after a decline of 9 per cent in FY16. Over last 24 months, the index has come back full circle, crossing 9K after first touching that level in March 2015. The Mid-cap index has delivered 35 per cent returns in FY17. FII flows had a good recovery at $7.8 bn in FY17 (outflow of $1.5 bn in FY16), while DII flows were healthy at $4.5b ($12.1b in FY16). In terms of sectoral performance trends in FY17, Metals (+57 per cent), PSU Banks (+54 per cent), Media (+54%), Oil (+48 per cent) and NBFC (+41 per cent) were the top outperformers. Technology (-9 per cent) and Telecom (-6 per cent) were the only sectors with negative returns in FY17. Interestingly, Metals, PSU Banks and NBFC were among the worst performers in FY16.
The movement of the Indian equity market in FY 17 was not one way. It did have its share of usual ups and downs. While it moved almost one way up in the first half (after the sharp fall in January and February 2016), market took a sharp downturn on November and December, mainly led by the demonetisation event. Post that, it again had a sharp one way upward movement in last quarter of FY 17. The rally in Q4 seemed to have been led by better than expected December 2016 quarter numbers by corporates which were in the backdrop of demonetisation decision of India and that was expected to have led to a sharp slowdown. However, the results did not turn out to be as bad. This was followed by the presentation of the Union Budget 2017-18 which was perceived to be quite positive. The other follow up events were the Assembly election results of five states and passage of GST Bill by the parliament. Moderate inflation and steadily rising exports were the reasons for optimism as well.

Going forward in the new FY (2017-18), there are a number of events that are lined up which can act as triggers to give direction to market both on the upside as well as downside. The first and foremost is the implementation of GST which will start happening somewhere around July if all goes as planned by the government. While there is no denying the fact that GST will be quite positive for India over the longer term, what kind of disruption it can create in the short term is difficult to comprehend. It is likely this could cause some kind of lack of clarity thus affecting corporate performance in the short term. The medium term impact of demonetisation will only get gradually known as the time passes by. Even then, it might be difficult to say about any impact as to how much of that can be attributed to demonetisation and how much to other development’s the recent example being the fire sale of automobiles led by SC order banning all the old vehicles.
Despite progress over so many years, Indian economy continues to be rain dependent and the progress of monsoon will be another key mentionable. Some parts of South India are already reeling under drought.
The two major benefits that were available to corporate sector in FY 17 may not be available any more. These were savings due to continuously falling interest rates and also due to falling commodity prices though last few months of FY17 already witnessed the commodity price upward movement.
The government has been having continuous focus on rural populace thorough the budget as well as through other schemes. This is likely to leave a lot more disposable income in the hands of rural population resulting into increased and for products and services from such areas.
The second half of FY 18 is likely to be much better in terms of growth compared to first half as by then, the impact of GST, residual impact of demonetisation and monsoon are likely to be over. The benefit of various govt schemes is also likely to be felt more towards the second half compared to first half. Post the implementation of GST, a very clear trend that is likely to emerge is the higher participation of organised business and shift of business from unorganised to organised sector. The impact of various initiative of govt investment into infrastructure is likely to lead to lot more growth opportunities in the capital good sector.

The risk is that India will have to watch out for will be the currency movement. If rupee continues to strengthen then it might affect our export growth. The interest rate action of US Fed will be other mentionable as that will decided the direction of global fund flows. Oil Price movement is always a key for oil import dependent countries like us. In terms of domestic risks — a prolonged slowdown imparted by implementation of GST would be something to watch out for. Impact of less than normal monsoon will be another challenge.
Taking all this into account, the sectors that could turn out to be outperformers in FY18 could be capital goods, roads and related infra, automobiles, rural plays and consumer demand oriented sectors.
(The writer is ED and CIO, Centrum Wealth Management)