Stock Market

Five risks that could hit stock market before next Diwali



Maryam Farooqui
Chillicious

Samvat 2072 gave investors a reason to cheer after closing on a positive note, with the Sensex rising about 9 percent through the year.

As Mahurat trading kickstarts Samvat 2073 on Sunday, the stage looks set for another robust performance for equities during the year, as analysts say a good monsoon, likely rollout of GST next year, and introduction of 7th Pay Commission will boost corporate profits and shares.

However, investors should at all times be cognizant of risks that could cloud prospects for the stock market. Chillicious takes a look at the five major risks that the market will face in Samvat 2073.

Donald Trump presidency

Not only is US Presidential candidate Donald Trump known for his controversial stance on subjects such as race, his economic policy too has left economists worried.

Trump has vowed to roll back free trade treaties, and promises to bring in tax cuts that some say could add trillions to the US federal debt. His stated immigration policy could also threaten to upset the flow of intellectual capital into the country, not to mention hit currencies of several emerging markets.

“If the Republican candidate was to win and if he was to implement what he suggested when he has been out electioneering, that would be a significant hit to the emerging markets supply chain and it would hit earnings in a big part of [EM] benchmarks such as Korean and Taiwan IT and also Mexico,” Adrian Mowat of JPMorgan recently told CNBC-TV18 .

Veteran investor Rakesh Jhunjhunwala termed Trump’s presidential run as a ‘joke’ and said American voters will likely not elect. Still, were the real estate tycoon were to become commander-in-chief, Jhunjhunwala said he would worry more for his “life” than his money.

“I am [going to be] afraid if he is going to have the nuclear button under him,” he said.

Indo-Pak relations

According to Rakesh Jhunjhunwala, the big local risk is the rapidly-worsening relations between India and Pakistan.

He said nothing was riskier than a “failed state with a nuclear bomb” and said that barring this particular geopolitical risk, the market stood in fine stead.

Europe + Brexit

Globally, the European economy, battling a slowdown and a highly-stressed banking sector, could become a risk,

“I think some threats can emanate from there,” Jhunjhunwala told CNBC-TV18 . “Italy is going to have a referendum and essentially I think the euro is an unstable currency and an unstable union.”

Further, next year will likely see follow-up on the momentous Brexit decision that the UK took in June.

At the recent BRICS summit , RBI Governor Urjit Patel recently listed Brexit, along with the US elections and European political realignments, as a risk that could impact the group of nations.

India earnings recovery

Even as the much-heralded earnings pick-up is yet to take place in full force, any disappointment could mean a dampener for stocks.

Enam Director Manish Chokhani recently made an interesting point about whether a consumption pick-up is around the corner.

“I find it laughable that even on consumption side, we are all betting on Seventh Pay Commission, we will kick-start the consumption cycle,” he said, adding that the country faced an acute shortage of “capacity” by way of profit-making potential.

“For the last four years, our car sales are 2.6 million cars. Our housing sales are basically flat. How on earth are you going to get consumption up and if consumption doesn’t happen, how do you get the capex cycle up?” he asked.

GST rollout troubles

Even as the government is going full throttle to try and roll out the ambitious goods and services tax on April 1, 2017, there is a risk of failure.

States are yet to agree on a lot of issues, including the tax structure and rates, and the government will have to pass three GST rates bill during the Winter Session of Parliament, where any rate higher than 18 percent will be unpalatable to the Congress.

Further, economists have warned that the rollout of GST could result in an inflation spike, potentially torpedoing any rate cut plans by the RBI.