Who’s afraid of Trump? 2017 can be breakthrough year for Indian market

Looking into the crystal ball has just got a bit more challenging, do I daresay even more uncertain than usual, this year with the whole world looking forward to the policies and actions of US President-elect Donald Trump while at home the economy has been going through the aftereffects of demonetisation.

Trump’s policies look reasonably clear – domestically the focus is on creating jobs and increasing spending. So, if the Congress is willing to play along, it will not be unreasonable to expect growth to pick up in the US.

Calendar 2017 can herald the re-emergence of fiscal spending in developed markets. The forces that drove Brexit, elected President Trump and have for long been simmering in Europe are primarily about lack of growth, leading to a lack of jobs or low-paying jobs.

These forces are unlikely to abate soon and Europe will embark on higher fiscal spending sooner rather than later. These should bode well for emerging markets (EMs), as they are all likely to be beneficiaries. But they are also likely to see volatility as interest rates go up in the US and there is a reallocation of global investments.
This should hold true for India also, with the positives tending to outweigh the likely negative impact on certain sectors such as software.

India could see the emergence of new export sectors and companies in the metals, engineering and industrial segments, which should be good news for the long term and for the 'Make in India' initiative.

International relations is probably where President Trump can have a big victory and end up upending the diplomatic protocol. However, if his actions were to backfire and if he were to precipitate action, one can expect very volatile geopolitical situations with no one emerging as winners. This would be the biggest risk for 2017.

Domestically, the first quarter of the calendar year will be critical as the economy would get to know the full impact of demonetisation. The prognosis is that the impact most likely will be shortlived, which if borne out should mean a quick recovery for both the economy and markets.

The recovery will be fuelled by the channelling back of 'black money' into the economy for productive deployment, rollout of GST and increased usage of digital payments.

Further, there is a high probability that the Union Budget will see announcement of favourable changes in tax rates and laws that can add further momentum to the economy.

The big risk is if the impact of demonetisation extends beyond two quarters and if it has a bearing on people's behaviour i.e. on their consumption, investment, risk perception etc.

2017 can be a breakthrough year if US growth and fiscal spending takes off, there are no geopolitical tension and the effect of demonetisation turns out to be a two-quarter event.

However, if the policies and actions of President Trump run into headwinds and the impact of demonetisation is longer, then expected the market to witness heightened volatility.

While investing in the equity market, one should always look beyond the immediate. In fact, investors should look far beyond. Given all the uncertainties, retail investors should now more than ever embrace SIP as the ‘go to’ investment vehicle.

(The author is CEO, Sundaram Mutual. Views and recommendations given in this section are his own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned)