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17 risks that can shake markets

January 02, 2017 09:03 IST

Here are some potential khatras, says N Sundaresha Subramanian.
Illustration: Dominic Xavier/Rediff.com

Illustration: Dominic Xavier

Satra is the Hindi word for 17 and khatra is the one for danger.

Will the rhyme in the words ring aloud on the Street?

Here are some potential khatras that could eat into your alpha.

1. Note ban spill over: The negative effects of the note ban on cash-based sectors such as real estate, construction and the larger consumption story will play out in 2017.

Former prime minister Manmohan Singh saw the economy contracting by 2 percentage points, though others have been less pessimistic.

Job losses are not good for the Sensex.

2. Tax fears: Rumours about a spike in taxes for equity investors are flying thick and fast.

As rival political parties taunt the prime minister for his closeness to the Street, it would be difficult for the government to control the urge to make a politically correct statement.

Whether it will be tax on long-term capital gains, change in definition of long term or hike in short-term capital gains is anybody's guess now.

3. A new Sebi chairman: A less communicative governor of the Reserve Bank of India has become a target of much criticism.

As the government moves into picking the top man at the Securities and Exchange Board of India (Sebi), it would be prudent to look for someone who can gain market confidence by articulating his vision even as he spends the year learning the nitty-gritty of market regulation and devious ways of usual suspects.

4. Exchange listings: Both major exchanges are coming up for listing.

For regulators, investors and exchanges themselves, this is uncharted territory.

As corporate governance gets bolstered, exchanges would have to become more accountable and transparent.

While this is in the public interest, it remains to be seen how they balance their regulatory role and business interests, amid competitive pressures and the tyranny of quarterly results.

5. Jio aur jeene do: It would be a make or break year for the second most valuable company.

Reliance Industries and its 2.5 million shareholders would be hoping that the move pays off without major hiccups. That might be bad news for incumbents in the telecom sector.

Investors need to play this cleverly and with nimble feet.

6, 7, 8. Successions at NSE and other large companies: Investors will be hoping for stability at the helm of the National Stock Exchange, which is going into the IPO process headless after the sudden exit of Chitra Ramkrishna, and at Larsen & Toubro and ITC that are looking at a critical year when their long-standing leaders are stepping down.

9. Regulatory changes/corporate governance norms: The allegations and issues that came up during the Tata-Mistry battle have posed serious questions on the institution of independent directors and corporate governance.

It also has initiated discussions at the regulator's level about the ownership of companies by trusts. The market might take time to digest changes, if any.

10. External factors: Flows, Fed & Brexit: Foreign portfolio investors have been selling more Indian shares than they bought in the past three months.

In debt, there has been even more outflows, resulting in a negative cumulative (debt + equity) flow figure for the first time since 2008.

As the US Fed embarks on a hiking cycle and Dow tests 20,000, Indian equities might have to work harder to remain attractive for big global funds.

11. IPOs drying: The booming primary market has been a bright area in an otherwise forgettable 2016.

But can it shrug off the recent slump and get back on track in time for big issues such as the Rs 10,000 crore NSE float?

12. Fake disinvestment: Despite a 'bright' change in name, the disinvestment department under the finance ministry has been a perennial underperformer each year, even as this underperformance is largely funded by the Life Insurance Corporation.

This eyewash adds to the risk of public sector units continuing to be the milch cows of the welfare state, often bankrolling populist moves.

13. Minimum public shareholding norms: The three year window given to public sector firms to comply with the 25% public holding norm expires in August.

Some calculations have put the amount of shares to be sold at Rs 1.26 lakh crore.

While such a supply could depress prices, the only solace is the government's own sloth.

14. Suuti: Beating several deadlines, Suuti continues to live on dangerously.

For the investee companies, it is a hanging sword.

15. Banking woes: While the bigger woe of the note ban has taken the focus off bad assets and capitalisation problems, these are yet to be addressed convincingly.

The sector could remain volatile amidst reform plans, such as mergers and interest rate decisions, amid prospects of a return of inflation.

16. GST roll-out: If this reform sees the light of day, which now seems likely only in the second half, there will be some disruption for all businesses.

If GST gets derailed for any reason, which still can't be ruled out, that would a long term setback.

17. State elections and political stability: Some states, including Uttar Pradesh and Punjab, will go to the polls in the early part of the year, while Prime Minister Narendra Modi's home state, Gujarat, would hit the buttons in the second half.

Setbacks in one or more of these could push the government into a populist push ahead of the 2019 general elections and put reforms further into the back rows.

As you step in to the New Year, don't forget there is no reward if there is no risk.

N Sundersha Subramanian
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