A New Year. An Uncertain Beginning.

2017 is going to be an exciting and uncertain year. There are so many unknowns that one can’t predict the year.

• ·       Demonetization – The entire exercise of pulling out Rs. 500 and Rs. 1,000 notes is over and the reason for the same seems to be unclear. Almost the entire amount of currency (Rs. 15.44 lakh crore) has been deposited in the banks and has come back to the RBI. This is not a good sign as it clearly shows that there is no fear of the law. Per reports, the RBI has put back around Rs. 8-9 lakh crore back into the system. I think this is all that will come back. According to me, the original amount of Rs. 15-lakh crore will not come back to the system. Because if it did, then no one will move to ‘digital’ as we are a ‘cash-happy’ country, given the fact that 98% of our transactions are in cash. The after effects of demonetization are still to play themselves out and no one knows for sure where they would lead to or how long it would be before things get back to normal. I think the current levels of cash are the new normal and slowly we will have to adjust to this. We will have to arrive at our own balance of cash vs. digital. I had hoped that the Govt. would have announced follow up measures to the demonetization on gold and property, but nothing has been announced so far. Hopefully, in the months to come. As many experts have as many opinions. Most are guesstimates as this is a ‘black-swan’ event which has no prior.

• ·       Trumped up – With Donald Trump in the driver’s seat now, there is a lot of uncertainty in the global markets. His ‘protectionist’ approach could change the dynamics of business across the world. No one knows what his policies would be and hence the uncertainty. From NATO to the TPP and NAFTA, the future of everything is unclear.

• ·       Fed rate hike – The US Fed is expected to raise their interest rates 2-3 times this year. This could lead to money moving out from emerging markets to the US.

• ·        Europe – has a series of events which will unfold this year:

o   The aftermath of the Brexit vote and Britain’s trade negotiations

o   Elections in Germany (September), France (April 23) and The Netherlands (March 15)

o   Referendum in Italy

o   the finalization of the third Greek support package

• ·       The Chinese bubble – The real situation in China continues to be uncertain. According to experts, this is a bubble which could unravel any time (though no one can put a finger on the time).

• ·       Oil prices – continue to rise and are currently @ $55-levels. For us in India, it is a growing matter of concern as the Govt. has done all its fiscal math based on a maximum of $60. Estimates say this level will be breached in 2017. So, the Govt. calculations could go awry if the price of oil grows beyond the $60 levels.

• ·       Elections in India – UP, Punjab Uttarakhand, Manipur and Goa go for elections in February-March, with results being declared on March 11, 2017.

• ·       Interest rates in India – G-Sec rates dropped significantly in the last quarter of 2016. Currently, the G-Sec. rates stand at around 6.5%. Most of the rate cutting has already happened. It could drop by another 0.5% or so over this year. A lot of this has already been passed on to the customer in terms of lower FD rates and lower home and car loan rates. I do not see scope for much more lowering. With banks being flush with funds currently (from demonetization) I think the rates are going to remain at these levels for some time now.

The Budget which is due on February 1, 2017 should be a harbinger of things to come. Fingers crossed till then.

 
Warm wishes to you and your family and a happy 2017.