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Business News/ Politics / Policy/  What to expect in the new financial year
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What to expect in the new financial year

At the start of the new financial year, Mint takes a look at the year gone by and what the new one may hold in store

Photo: Sattish Bate/Hindustan TimesPremium
Photo: Sattish Bate/Hindustan Times

Today is the first day of a new financial year, which follows one that restored a sense of political stability after a landmark general election and infused hope of economic reform and revival. At the start of the new financial year, Mint takes a look at the year gone by and what the new one may hold in store.

Politics and policy in 2015-16

The last fortnight or so of the last fiscal year has been the most eventful period in the 10-month-old tenure of the National Democratic Alliance (NDA) and also cause for hope in the year ahead.

The NDA managed to break the legislative deadlock in Parliament and eventually won approval for five of the six ordinances that it had passed in an act of desperation in December. Together with the presentation of an impressive budget, the NDA has regained its momentum.

It has, however, taken a big political gamble by staking its social capital on the passage of amendments that will dilute the existing land acquisition law. If the Congress succeeds in its populist campaign that the proposed new land law is anti-farmer, the NDA would be back to square one. A similar challenge is being posed by a sprinkling of saffron groups threatening communal polarization.

Eventually, it’s the NDA’s ability to deal with the politics that holds the key to good economics.

2014-15

It is almost impossible to look at last year and not conclude that it was a defining one for Indian politics. And again it was as much about the near political demise of the Congress as it was about the emergence of a new-look Bharatiya Janata Party (BJP) under the leadership of Narendra Modi as the new pole of Indian politics.

The fact that the Congress fell short of even making the cut as the main opposition party only reaffirmed that the party has entered terminal decline. And in the ensuing assembly elections, the retreat of the Congress continued, culminating in the Delhi state polls in which it drew a blank.

Yet, there was an unpredictable sub-text to this political upheaval—the spectacular arrival of the Aam Aadmi Party as a potential challenger to the hegemony of the Congress and the BJP.

Suffice to say Indian politics will not be the same any more.

—Anil Padmanabhan

Economy in 2015-16

The new fiscal year begins with a paradox: what is seen in the official economic growth numbers cannot be seen on the ground.

Confidence in the strength of the recovery will be fragile till indicators such as industrial output, corporate profits, bank credit and new projects show more dynamism.

The overall picture looks pretty.

India is one of the few bright spots in the global economy. It stands out among the major emerging markets. As is well known, it is widely forecast to grow more rapidly than China in the year ahead.

Yet, there are risks as well. First, lower farm output is already pushing up food inflation. Second, the investment revival is nowhere in sight. Third, companies have too much dollar debt at a time when the US currency is appreciating. Fourth, banks continue to be weighed down by bad assets.

The upshot: The risks now are micro rather than macro.

2014-2015

The recipe for revival in the fiscal year that has ended had two ingredients: a dollop of sensible policy plus a pinch of good luck.

The growing mess in countries such as Brazil shows that Indian policymakers did well to learn the right lessons from the run on the rupee in the middle of 2013, by resolutely going after economic imbalances: rampant inflation, a high fiscal deficit and a record current account deficit. The luck came from the sudden collapse in global oil prices.

There was also an election that swept away the threat of political instability. That an insipid first budget in July was followed by a good one in February indicates that the new government is getting its policy act together. The other big news was the sharp decline in inflation. All this set the stage for a fragile economic revival. Whether this revival consolidates will depend on what happens in the coming months.

—Niranjan Rajadhyaksha

Corporate in 2015-16

A 2% jump in the Sensex on 30 March served as a quiet reminder that FY15 has seen the highest equity market returns in the last five years.

But it takes two to tango and in the face of disappointing corporate earnings and subdued demand in the economy, the onus is on Indian companies to take advantage of the turn in the interest rate cycle, a sharp decline in energy costs and a government clearly committed to easing the process of doing business.

Opportunities abound, for instance in manufacturing, infrastructure, alternative energy and increased government spending on digitizing processes.

But global risks, among them increased currency and commodity price volatility, as well as a dreaded Chinese implosion and sluggish export demand, will have to be set off against the expected uptick in domestic demand.

2014-2015

Indian companies had been hopeful that a new, ostensibly business-friendly government would make their life easier by reducing borrowing costs, slashing bureaucratic hurdles, and applying the brakes on draconian tax demands to kickstart investments; in the event, the hopes were a bit premature. While a cyclical recovery was already underway even by the terminal months of the United Progressive Alliance government, fiscal 2015 did not see any appreciable pick-up in investments.

The earnings of most firms in the December and September quarters far belied expectations of a revival in earnings growth. The railway budget and the general budget in February ushered in the first real impetus for the corporate sector, mainly in terms of making it easier to invest, manufacture and exit from businesses.

—Sundeep Khanna

Markets in 2015-16

The external environment is likely to be more challenging in the new financial year. The US Federal Reserve is likely to start raising its policy rate, which could, at least initially, have an adverse impact on funds flows to emerging markets.

The scope for further reduction in crude oil prices is limited. The big falls in commodity prices too may be behind us. The sharp fall in inflation may also be coming to an end. Most fund managers are already overweight India and valuations are high.

The markets have gone up so far on the promise of achche din. In 2015-16, that promise needs to be translated into growth in corporate earnings. Investment demand, which has remained tepid, needs to pick up.

In short, 2015-16 could be the year when the fundamentals matter. If the last financial year was the year when price-earnings multiples expanded on high hopes, 2015-16 needs to be the year when earnings growth catches up.

2014-2015

The Indian stock market was one of those most favoured by investors in the last financial year. The MSCI India equity index is up 19% in the past one year in US dollar terms, compared with a fall of 1.6% for the MSCI Emerging Markets index (as on 30 March). MSCI India also handily beat the MSCI World as well as the Emerging Market Asia indices.

The single most important reason was the election of a strong, business-friendly government. Around half the gains in the Nifty during the financial year had already been made by the beginning of June 2014. The market also benefited from a stronger economy and a stable currency, lower inflation, the prospect of rate cuts and, most importantly, the crash in the crude oil market.

With abundant global liquidity and with many of the world’s economies struggling, funds made a beeline for the Indian markets.

—Manas Chakravarty

E-commerce in 2015-16

If 2014 was the year e-commerce became a mainstream channel of shopping in India, it may lose its relevance as soon as this year. As cheap smartphones proliferate, m-commerce, or mobile commerce, is fast replacing e-commerce, or desktop-based commerce, as the preferred shopping medium of a majority of shoppers.

Already, the likes of Flipkart, Amazon, Snapdeal, Myntra, Ola and Uber get a majority of their business from their mobile apps.

Expect more consolidation this year as the top online retailers seek scale, better technology and smart people. Entrepreneurs will continue to experiment with newer e-commerce businesses, specially in the fastest growing verticals such as home, fashion and lifestyle.

This year will provide answers, or at least strong clues, to the most pressing issues in the start-up world: when is the bubble going to burst and who will survive when capital becomes scarce. There is no doubt among investors that current valuations aren’t sustainable.

When the rush of capital slows, expect forced mergers, sales at cut-rate prices and perhaps, most importantly, at least for shoppers, lower discounts.

2014-2015

Even in a capital-starved economy such as India, whose consumer story had taken a beating for two years because of slowing growth and high inflation, e-commerce businesses led by Flipkart attracted more than $4 billion of capital last year.

As investors continued to bet on the Indian e-commerce story post Chinese e-retailer Alibaba.com’s initial public offering, valuations of Indian start-ups surged. Flipkart’s valuation jumped to nearly $11.5 billion in one year from less than $2 billion while Snapdeal’s value doubled to more than $2 billion.

Critics continued to question the valuations as the firms are nowhere near achieving profitability.

With their coffers over flowing, online retailers dominated advertising space and gave deep discounts to attract shoppers; their offline peers suffered big, and were forced to think seriously about entering e-commerce. Tata group, Reliance Retail and Aditya Birla Group all started work on their online platforms.

On the other hand, the failure of Flipkart’s BigBillionDay sale indicated how the industry was unprepared to fulfil the massive demand and that the supply side has to be strengthened.

And then there were some silent exits, with companies like Yebhi.com and Tradus.com closing their e-commerce businesses as it became difficult for non-market leaders to raise money.

—Shrutika Verma & Mihir Dalal

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Published: 01 Apr 2015, 12:10 AM IST
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