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6 global factors to keep an eye out for
What happens in one corner of the world affects another part. That’s the unsaid rule of globalization. This applies to India and its markets too. This is especially because foreign investors are one of the largest players in the financial markets.
So as an investor, you need to keep an eye out for all the global factors that could affect India. Here are six, as per a recent report by the International Monetary Fund (IMF).
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Better growth world-over:
The world economy is expected to grow 3.1% in 2016. This is expected to rise to 3.4% next year and 3.6% the year after. This is because both advanced and developing countries are expected to grow faster in the coming year. However, risks like political developments against free trade; geopolitical risks like civil war; poor reforms by governments, and lower-than-expected stimulus from the US and Chinese governments could affect this growth estimate.
India impact: This is good news for India and especially its exporters.
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Developed countries to pick up speed:
The IMF is confident about growth in developed countries like US, Britain, Germany, Japan and Spain. It increased the growth forecasts for these countries by varying degrees. On the whole, these advanced economies are expected to grow by 1.9% in 2017. It earlier predicted a 1.8% growth. However, this depends on the policies by the new US government. IMF currently expects the government to inject money into the economy through different policies. This is expected to make the US economy grow faster by 2.3%.
India impact: Sectors like IT and Pharma depend heavily on the US and European markets. A prospering economy could mean higher sales for such Indian companies
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Increase in oil prices:
The growth in emerging countries is a mixed bag, with multiple problems affecting different nations. This includes the Middle-eastern countries like Saudi Arabia. The oil-producing countries recently agreed to cut down production. This caused a minor rise in oil prices. Many experts and analysts now expect oil prices to be volatile in 2017.
India impact: Oil could be a big deciding factor for India. A sharp rise in prices is bad for the Indian economy. It is potentially inflationary and could set back any improvement in the economy.
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Commodity prices to rise:
Let’s go to China first to understand this. China is the biggest consumer of commodities like steel and copper. Commodity prices took a hit in the last few years because of the fall in demand from China. But the Chinese government is offering policy stimulus. This could lead to a faster economic growth of 6.5% in 2017, as per the IMF. As a result, demand – and thus prices – could increase.
India impact: This has a mixed impact. Importers could be negative affected. However, exporters like steel companies could benefit.
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Interest rate hikes:
Monetary policy in various regions like the US, Europe, and Japan affects markets world over. This is because foreign investors often borrow cheaply and then invest in global markets. The IMF expects a marginal rise in interest rates in the US, Europe, and Japan.
India impact: A higher-than-expected rise in interest rates could affect markets. Foreign investors could turn risk-averse and opt to sell shares in emerging market economies like India.
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Political developments:
A recent worry is that countries are turning protectionist. Many countries in the recent past have started speaking about restricting free global trade and migration. The IMF flags this as an important concern that could affect markets world over, economic productivity and even incomes. Moreover, there are also other geopolitical risks like conflicts in the Middle East and Africa, acts of terror and refugees from such war-torn regions.
India impact: Markets do not like wars and acts of terrorism. Such activities have a significant economic impact. And this extends to the Indian markets too.
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6.5%
The IMF increased its forecast of China’s economic growth in 2017. The Asian giant is now expected to 6.5%, higher than the earlier forecast of 6.2%. This revised figure is still lower than India’s revised growth rate forecast of 7.2% for FY2017-18.
