Key domestic and global cues to watch out as we look forward to year 2016

A yearfull of immense volatility in the markets has passed, but that won't stop the greed and fear within the investor groups in setting a direction for the markets.

We start the New Year with a hope in a sense that although key legislations like GST, Real Estate Regulator Bill etc were not cleared in the winter session but the session proved to be one of the most productive ever in terms of passing other legislations. So the investors would be keenly watching the happenings in the parliament along with the polity around it.

When PM Narendra Modi assumed power, he inherited a paralysed system. For that my initial assumption was that it will take him at least two years to reactivate the system. This assumption is proving out to be true. Nevertheless, lot many reforms in diverse sectors like infrastructure or agriculture etc, which do not require legislation, have been cleared in last one year. This year would be the year of implementation and it would be interesting to note how Modi gets on the task of implementing them.

Please note, given the federal structure of our country, implementation per se is joint effort of central and state government with some 55 per cent onus on the state government and some 45 per cent onus on the central government. Given this scenario of implementation, a key question that would come is how the implementation will affect the earnings of the companies? How soon will we be able to forecast stable growth for corporate India? So these would be some of the thoughts at the mind of the investors.

As far as foreign institutional flows are concerned, I believe it is a clear fight between Europe and India on who attracts more, with no other competitor. India certainly cannot match the depth of European markets but I believe that FIIs will return back to India after the Budget for the year FY17 due in February. So the Budget may prove to a key inflexion point as far as Indian markets are concerned.

RBI's stance on the monetary policy will depend upon the monsoon this year. Having seen subdued rainfall in last two consecutive years, monsoon induced inflation would be the key parameter. Talking about inflation, I believe India will remain safe as far as imported inflation in terms of crude oil prices is concerned. I don't foresee any production cuts by the OPEC in medium term, my analysis supported by the fact inspite of US shale oil industry bleeding, it is still pumping at record levels. Not only US, but another major non OPEC oil producer, Russia, is also pumping oil at record levels, last seen in Soviet era.

Rupee, I believe, will not only be dictated by foreign portfolio flows but also by the extent of pace of reforms and deregulation which would attract FDI especially in a scenario where many new sectors have been opened up or the extent to which offshore investors can invest increased.

On global front, the key issue to be watched out would be the pace at which interest rates would be increased by the Fed. Neither of the ECB stimulus or BOJ stimulus have the same effect on the markets as the Fed has. So Fed would remain the key.

(The writer is an investment strategist)