The curtains have been rung down on an eventful year. Brexit, Donald Trump’s surprise victory in the US Presidential elections, rising crude oil prices and, wrapping up the year, the biggest of them all — demonetisation — were some of the major highlights of the year. And the reverberation of all these events will be felt in the unfolding year.
Some other factors will also play a role: the US Federal Reserve’s decision on a rate hike, implementation of the seventh pay commission, monsoon and rollout of the Goods and Services Tax will cast their shadows on 2017.
Given all this, economists and analysts feel that the major sectors to watch out for, if you are an investor, are consumer durables, defence infrastructure, banking, and renewable energy.
“In India, consumption will still be the driving force. Consumer durables will remain in focus. Demonetisation has had a positive impact on organised consumer durable companies,” said Sujan Hajra, chief economist, executive director- institutional equity at Anand Rathi. “Secondly, the seventh pay commission (payout) is another big event that can boost consumption in the coming year.”
Implementation of the seventh pay commission came into effect on January 1, and with this, 4.7 million central government employs will see their pay increase by 16%, while the pension payout to around 5.3 million people will go up by as much as 24%.
The monsoon will be another eagerly watched event (as usual) as rural consumption depends a lot on good monsoon, and is one of the main drivers of the overall economy.
“Last year monsoon did pretty well as compared to (the previous) two years. There should not be a major dent in rural consumption; rather a marginal improvement is expected. The rural economy has a higher propensity to consume and it will benefit by direct benefit transfers and digitisation,” Hajra said.
After a 2016 that got progressively tighter, consumer durables players are bullish about their prospects this year.
“We saw an improvement in basic macro-economic indicators for the overall economy and for appliance sales through the year which bode well for future demand,” said Sunil D’Souza, MD, Whirlpool of India. “While we did see a slowdown in demand at the tail end of the year due to several factors, we remain bullish on the long-term potential in India and are confident in delivering our growth plans going ahead.”
One sector that made waves in 2016, and is likely to take the momentum forward in 2017, is defence infrastructure. India became the world’s fourth-largest defence spender last year with a military budget of ₹3.4 lakh crore. The Union government’s special thrust to defence manufacturing, in tune with the ‘Make in India’ campaign, made major international defence production companies sit up and take notice. The government has also opened up the sector by increasing the FDI cap in defence to 49% and ‘rationalising’ certain conditions, leaving the sector with huge potential to really take off.
India’s banking sector has been under considerable stress in the last few years, but things may finally be falling in place. Bad dept, re-capitalisation, and low credit growth were some of the issues dogging Indian banks, but the surge in deposits due to Prime Minister Narendra Modi’s November 8 demonetisation exercise is likely to leave a positive impact on them. Today they are sitting on more deposits than the credit they are disbursing.
As RBI has also allowed banks to invest incremental deposits in government bonds, and with yields going down, they are actually in a position to make treasury gains. The income accrual due to treasury gains can marginally improve their capitalisation.
“There are many trends to look out for in the banking sector apart from rise of deposits. Firstly, rise of digitisation, which is partly a by-product of demonetisation, will benefit banks as they already have the infrastructure, ready to implement. Secondly, with more people from rural India coming under the banking ambit, it will bring an inflection point in rural banking,” said Abheek Barua, chief economist at HDFC Bank.
The government is expected to increase spending in the upcoming budget will also help in driving credit growth. “The global situation of tightening of US dollar will also help rupee funding to get a boost. External commercial borrowings will be more difficult to get in the coming years, and domestic loans will benefit, which is again good news for India’s banking sector,” Barua said.
With environmental concerns coming to the foreground worldwide, and green power being a thrust area for the Narendra Modi government, renewable energy is another sector to watch out for in 2017. “With the cost of coal and other petroleum products going up, the gap in the cost of producing renewable and non-renewable energy is reducing. This will help shift focus on renewable energy sector,” Hajra said.
The total installed energy capacity of India, as of November 30, 2016, was 309 GW, and nearly 30% came from renewable sources. India had targeted installation of 4 GW of wind capacity and 12 GW of solar capacity in 2016-17. Till September 2016, it had achieved 40% of its wind energy and 17.5% of its solar energy targets.
To achieve the target, the government and other private players will have to install 2.35 GW of wind and 11.8 GW of solar energy capacity in 2017, which will open massive business opportunities.