Even before new calendar year dawns, we have some good vibes for the economy and the domestic stock market in the coming year. The first bit is of course on the monsoon front, which is a crucial macro-economic trigger for India. After two years of successive monsoon failures, the new calendar is likely to see a better outcome, with some weather experts predicting a La Niña next year. Should that materialize, there is no risk of any fresh drought and hopefully we will have a good monsoon.
The second big trigger is of course the Seventh Pay Commission award, which is expected to create strong consumption demand in the economy. Urban demand has pretty much held up in most parts of the country over the past few quarters though rural demand has been quite slow.
Along with the pay bonanza, the government steps to improve the ease of doing business and simplify business opportunities as well as frontload expenditure have helped create demand in the economy. The government has been spending on infrastructure, and mining has restarted in pockets, and hopefully, it will get extended further and infrastructure spends, leading to more efficiency, more productivity, and more output.
Credit off take, another key component of the economy, has been pretty slow this year compared with what it was last year. With the interest rate trajectory firmly on decline, it is expected to help better credit off take, leading to better demand in the economy.
Capex takeoff is another trigger markets and investors have been waiting for long. The government has consciously tried its part to make it happen faster, so that private sector investment can follow. For instance, Rs 34,000 crore worth of road tenders have been issued in November. In cement, we are seeing 70 per cent capacity utilization. Once these existing capacities get used up quickly, there will be scope for fresh capital expenditure and capacity expansion, leading to better growth in the economy.
From purely market’s perspective, the major event risks appear to have gone and if earnings growth picks up as expected from the second half of this financial year, then the stock market should do better in the days to come.
The only stumbling block, if any, has been the slow progress on the reforms front. There has already been a big setback that the GST front, as the crucial legislation is still stuck in political logjam. Even the bankruptcy bill appears deadlocked.