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Last Updated : Dec 31, 2019 10:58 AM IST | Source: Moneycontrol.com

Slideshow | Key market factors to watch out for in 2020

From the US-China trade war to mounting global debt, here are some key factors that will affect the Indian market in 2020:

Calendar 2019 turned out to be an eventful one for the Indian equity market. From PM Narendra Modi's re-election to corporate tax rate cut to prolonged slump in the auto sector, the year was full of jolts, albeit not always in the favour of the investors. As we step into the New Year, there are a plenty of factors investors will need to watch out for. Here are some key factors that will affect the Indian market in 2020:
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Calendar 2019 turned out to be an eventful one for the Indian equity market. From PM Narendra Modi's re-election to corporate tax rate cut to prolonged slump in the auto sector, the year was full of jolts, albeit not always in the favour of the investors. As we step into the New Year, there are a plenty of factors investors will need to watch out for. Here are some key factors that will affect the Indian market in 2020:

US-China trade war | The trade war between the US and China has been one of the spoilers for global trade and the global economy. Even though the two largest economies of the world agreed to sign a preliminary trade deal, investors will remain cautious until a firm resolution is reached.
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US-China trade war | The trade war between the US and China has been one of the spoilers for global trade and the global economy. Even though the two largest economies of the world agreed to sign a preliminary trade deal, investors will remain cautious until a firm resolution is reached.

Geopolitical issues | There are several geopolitical issues that serve as dormant volcanoes. The situation in Iran and the rest of the Middle East, Korea, are challenges that may persist and have far-reaching consequences for the world economy.
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Geopolitical issues | There are several geopolitical issues that serve as dormant volcanoes. The situation in Iran and the rest of the Middle East, and Korea, are challenges that may persist and have far-reaching consequences for the world economy.

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Global economic slowdown | In 2019, all the major economies witnessed a slump in growth. The central banks including US Fed, ECB and RBI provided rate cuts to counter the demand crunch and bring liquidity in the economy. Most of them also indicated quantitative easing in the future. Hence, it will be vital to see how the past rate cuts bode for the global economy and also what corrective measure do the banks take.

The China factor | China is important not only for the interest of investors in FPI and FDI in the country but also for the Chinese interests in the rest of the world. Foreigners hold close to $5 trillion of Chinese assets as of 2018, of which about half of it is FDIs and the rest is FPIs and bonds. This growth has happened over the last one and a half decades, from relatively small ownership of $500 billion. If the trade war escalates, the consequences will be felt around the world due to its linkages. That is why China is important in the larger scheme of things. A resolution of the tariff war is at the heart of a better order in the world markets.
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The China factor | China is important not only for the interest of investors in FPI and FDI in the country but also for the Chinese interests in the rest of the world. Foreigners hold close to $5 trillion of Chinese assets as of 2018, of which about half of it is FDIs and the rest is FPIs and bonds. This growth has happened over the last one and a half decades, from relatively small ownership of $500 billion. If the trade war escalates, the consequences will be felt around the world due to its linkages. That is why China is important in the larger scheme of things. A resolution of the tariff war is at the heart of a better order in the world markets.

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Global debt | In many developed markets, the debt servicing capacity of corporates in the manufacturing sector has been coming down since the middle of this decade. Withdrawal of quantitative easing and US Fed hiking interest rates to tackle inflation led to higher borrowing costs. And earnings growth has been slowing, which indicates lower profitability for the companies. The weaker servicing capacity often indicates the potential for an economic slowdown as also for corporate debt to become cheaper due to selling from those who hold substantial amounts of the same. This requires a significant amount of diligence to be exercised while investing in debt, in any form, with an accent on credit risk.

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Domestic vicious circle | Unless the economic revival is supported by stronger investment and consumption, the economy will continue to stagnate. This requires more spending by the government, and that again is difficult in the absence of buoyancy in government revenues. The likelihood of fiscal slippages, a rising CPI resulting from higher food prices, the lack of credit flow to critical sectors like the non-banking finance sector, the sector-specific issues faced by auto and telecom, are all issues that are crying for resolution at this moment.

First Published on Dec 31, 2019 10:58 am
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