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5 things to expect this 2015
2014 is almost over. This has been a great year for the Indian market. The Sensex has given a 30% return this year. Optimism is high for the next year to be even better, significantly because of an improvement in the economy.
Here are five things to expect in 2015:
Lower interest rates:
One of the biggest events next year would be a cut in borrowing rates by the Reserve Bank of India. Inflation - the big bane of the economy - is down from near double-digit figures to around 5%, well in line with RBI's comfort levels. The only thing that has kept the RBI from cutting interest rates already is the risk of a rise in inflation - particularly due to elimination of the high base effect. This is when the growth in inflation seems lower because the previous year's prices were too high. Post December, the high base effect would wane. In its latest monetary policy review, the RBI too hinted at a cut in interest rates early next year. Analysts believe this could be in the February monetary policy review.
Higher GDP growth:
There were two key issues with the economy that led to a slowdown - investment bottlenecks and high inflation. Other fundamental factors like fiscal and current account deficits too hampered growth. These are expected to improve in 2015. The government has cleared multiple investment projects; private investments too seem to be restarting. Fiscal deficit is expected to be at 4.1% of the GDP while inflation is down. All this is expected to improve the demand scenario and help fuel the economy. India is expected to grow at 5-6% in FY15, according to Moody's, a credit ratings agency. This is up from 5% in FY14. "Employment and consumption are likely to rise in India, and the fall in global commodity prices will help to lower high inflation in the country," Moody's said.
Growth in corporate revenues and profits remained weak this year. Net profits of the Sensex companies grew 6% from the previous year. This much below analysts' expectations of a 10% growth. This is expected to continue for the December and March quarter of FY2015 too. "Underlying trends in banks and consumer staples remained weak, but order inflows picked up, suggesting potential economic recovery in the next 2-4 quarters" a Kotak Securities report said. This means, corporate growth is expected to pick up in the next year.
The finance budget presented in Parliament in July this year was not for the whole fiscal year. Also, the new government had less than a month to prepare for the Budget. All eyes are now on the Union Budget to be presented early next year. Much is expected from the reform-oriented government. One of the key reform measures expected is the rollout of the Goods and Services Tax (GST). The bill aims to replace the current complicated indirect tax structure with a simple single tax system. However, state governments had multiple issues with the GST plan. Recent reports suggest talks between the central and state governments have picked up pace. The centre is looking to rollout the GST from April 2016. The upcoming Budget could lay the groundwork for the same.
US interest rate rise:
We live in a globalised world. Policies in other countries affect India too, especially those in the US. For years, the US central bank Federal Reserve kept interest rates are near zero levels to fuel its economy after the 2008 recession. However, this could end next year. As the US economy grows, inflation is rising at a faster pace. To curb this, the central bank has indicated it could raise interest rates. This is expected to happen in mid-2015. A rise in interest rates could lead to a temporary fall in the Indian markets. This is because money would not be available that cheap in the US any more. So, investors would look to exit risky investments in emerging markets like India. Foreign investors are one of the biggest players in the Indian markets. Any increase in foreign outflows leads to a fall in markets.
Current account deficit is the difference between imports and exports. It had hit a decade high of 4.8% of the Gross Domestic Product (GDP) in 2012-13, prompting the rupee's free-fall. However, crude oil prices fell nearly 41% since June in 2014. This is expected to bring down current account India's deficit to nearly 0.2% of the GDP by March FY15, according to a Livemint report. In FY14, the current account deficit narrowed to 1.7% of the GDP.