Factors that can drive market sentiment in 2013

     Print Edition: January 2013

Aditya Birla Money Head of Research Vivek Mahajan
Economic reforms:
The government's move in September to liberalise foreign direct investment (FDI) rules in retail, aviation and insurance sectors along with increase in fuel prices to cut the fiscal deficit improved investor sentiment and foreign institutional investor, or FII, inflows. Continued progress on economic reforms such as the goods and services tax, direct taxes code and better targeting of subsidies must be watched out for. In the near term, increase in FDI limit in insurance from 26 per cent to 49 per cent and passage of the Pension Bill, can be a possible upshot.

Domestic monetary policy:
Inflation has been sticky at 7-8 per cent. Consumption demand is still strong and rupee depreciation has negated the fall in prices of commodities that we import. We have gone through a considerable period of elevated interest rates and slow growth. The RBI is unlikely to continue with its hawkish stance on inflation and wait for it to come down to 5 per cent before cutting interest rates. It will probably increase its inflation threshold from the current level of 4-5 per cent.There is a possibility that the RBI will front-load interest-rate cuts. This may boost growth and investor sentiment and reduce interest costs for companies.

Developments on domestic investment front:
Discussion papers have been moved on issues such as fast-tracking approvals, resolving power sector issues, creating viable public-private partnership contracts and resolving land acquisition problems for infrastructure and industrial projects. Action on these issues will increase productivity, contain inflation, push up corporate earnings and improve economic growth . The proposal to set up the National Investment Board to fast-track approvals for large investment projects is a step in the right direction.

Vivek Mahajan
Head of Research, Aditya Birla Money

  • Print

A    A   A