Transcript of the Podcast
Hi I am Arjun Parthasarathy speaking and this podcast is on “Action packed four months for markets ”
The period June to September 2016 will go down as one of the most packed periods in terms of events. No I am not talking about sports, where the calendar is jam packed with events including Euro 2016, Copa America 2016 and Olympics apart from other regular events. I am talking about markets, which will see Fed meet on possible rate hikes, Britain voting for staying in or out of European Union, US presidential race, possibility of GST bill being passed, extension of term for present RBI Governor or a new Governor being appointed, monsoons and FCNR B deposit maturity outflows.
Indian equities, bonds and the INR could possibly see high volatility in the coming months and investors are advised to brace themselves for the volatility.
Fed meets in June and July to review policy and possible hike rates. The May jobs data has pushed back bets for a June rate hike but a positive June jobs data could see the Fed hiking in July. Britain votes to stay in the European Union (EU) of go out of the EU on the 23rd of June. A vote to go out would lead to fresh question marks on the sustainability of the Euro leading to global risk aversion that would impact capital flows into India.
US is set to vote for a new president this November and the campaign of the two contestants will be watched closely by markets.
In the Indian context, there is fresh optimism on the GST bill being passed by the parliament, which is highly positive for markets. GST is a key indirect tax reform, which if passed can lead to higher indirect tax revenues for the government and also debottleneck movement of goods across the country.
The first term for the current RBI Governor. Dr. Raghuram Rajan is ending in August and there is speculation on whether the term will be extended. Markets would react positively if term is extended as it would mean a continuation of good policies but if term is not extended and global markets are risk averse on global factors, there could be high volatility in the domestic markets.
India is eagerly waiting for a normal monsoons after a few years of drought and while indications are above normal monsoons, unpredictable weather patterns could lead to predictions going awry.
The country will also see a potential outflows of around USD 20 billion starting September 2016 as FCNR B deposits collected in 2013 mature. RBI is covered for the outflows through forward USD purchases but if USD demand shoots up then delivery of USD by counterparties to RBI could see issues leading to high volatility in the INR.
Given the action packed four month period for markets, investors should be watchful and take decisions as events unfold.
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