The market is now bracing for key reforms such as the goods and services tax implementation and rolling out of the direct taxes code
The Indian equity market is heading into the second-quarter earnings season for 2012-13 with mixed sentiments — positive domestic cues and muted global cues. The euro-zone crisis has continued to cast a shadow on the global equity markets even as the US economy has been staring at the prospect of a fiscal cliff towards the end of this calendar year. There are clear indications of a global growth slowdown as is evident from the moderating Chinese economy and anaemic growth across the developed world.
As a response to the deteriorating global macro scenario, central banks around the world have resorted to coordinated monetary easing in some form. The liquidity so created would be finding its way into risky asset classes including emerging market equities and global commodities and this has kept Brent crude prices buoyant at around $115 levels despite the global slowdown.
Fortunately for us in India, things are far from gloom and doom. While GDP growth has moderated over the last couple of quarters, there have been justifiable reasons for optimism, especially in recent weeks. The Indian government has announced several long-awaited reform measures such as a hike in diesel prices, opening up of foreign direct investment (FDI) in many sectors including multibrand retail and approving divestment in some public sector units. It has also proposed upping the FDI cap from the current 26% to 49% in insurance and pension and approved effective amendments to the Companies Bill. The Cabinet also approved the 12th Five-Year Plan which focuses on big-ticket infrastructure creation with an aim to achieve an average economic growth rate of 8.2% during the Plan period. While these actions have a limited impact on the fiscal deficit, it is a clear signal that the government wants to keep the fiscal deficit as close to the budgeted 5.1% of the GDP as possible. This was further reinforced by the unchanged second-half government borrowing calendar.
The government’s commitment to reform measures have arrested the fall of the rupee, boosted business confidence among India corporates and could act as a catalyst to spur the investment cycle. In September, the Indian equity market has been among the best performing equity markets globally and the positive or ‘risk on’ sentiment was evident, especially in interest sensitive sectors like