We had all the odds during the start of the year, but equity market rallied throughout to new record high; ignited by a new era of transformations. Initially these transformative ideas provided a hiccup to the market, but changes from the old system to new ideas converted the ideology of the market. Excluding the bounce back we had post the 2008 crisis in 2009, 2017 will be recorded as amongst the second best year post the election rally of 2014, over the decade. We had rally across all the sectors in the market. And found new segments of performers like Realty, Consumer Durables & Discretionary, Metals, NBFCs & Private Banks.
The demon started with the global market led by US election. Then in the domestic market led by Demonetisation and then followed by GST. Initially market assumed that this may be a disaster to the economy & political stability, immediately impacting the market by ~7-8% in the respective cases. But as they understood that the implication of the new policies may be positive for the market, globally & domestically market reversed into an upgraded rating. For example, the political wavelength of Trump economics was different, but the financial measures were positive like infra spending, lucrative outlook over FED and Tax cut plans. Though his political impression to the administrative working continues to be muted. Similarly the domestic market reversed in spite of the double whammy of Demonetisation & GST, expressing its long-term improvement in the fiscal and benefit to the listed entities. All these factors led to increase in valuation in spite of lack of earnings growth, hoping for upgrade in future profitability and cut in systematic risk.
We had started this year wondering about the risk of US rate hike, which did happen increasing by three times by 75bps to 1.5%. But this did not impact the market since the liquidity of the market was maintained by supplemented funds from ECB, Japan and China. Also the Federal Reserve’s (assets) was not brought down but maintained at the same level throughout the year. Additionally, as world economy improved the money-multiplier & return on investments surged, the confidence and ability of the financial market to absorb interest rate hike. Net FII inflows increased to ~Rs52,000cr in CY17 from ~Rs19,000cr in CY16.
Since the national election, market has been enthusiastic about the government’s business measures and intension to upgrade India’s business environment towards the global standard. Market has been optimistic to measure like Make in India, Defence policy, Demonetisation, GST, NPS restructuring, Bankruptcy code and Recap, many of which was initiated during the year. Even though the initial impact was detrimental, market rallied by re-rating with a hope for long-term benefit and political stability. Market extended the rally as central government role strengthen in the Rajya Sabha,.
This year has been a bonanza as MF investment touched to more than 1,07,000cr (15th Dec), almost equal to the amount invested in 2015 & 2016 together. Retail inflow to equity MF scheme has increased to the all time high at ~160,000cr (Nov). This trend had expanded post Demonetisation and may be largely maintained unless the confidence of the retail investor reduces due to domestic risk or cautiousness in the global equity market.
A good budget also helped the market as it touched all the essential aspects of the economy with focus on rural market, infrastructure spending and poverty eradication. A strong push in government spending and an overwhelming fiscal target at 3.2%. Domestic market was also benefited by low crude prices and good monsoon on a consecutive basis.