5 reasons why Indian markets will stay volatile

Shishir AsthanaMoneycontrol Research

Ever since Donald Trump was elected to the world’s most powerful job, global markets have been volatile. Uncertainty over policy changes and increasing protectionism are worrying markets. The US Federal Reserve has also contributed its share in keeping volatility higher by increasing interest rates.

Indian markets are struggling to cope with the overdose of newsflow, topped off with the demonetisation whammy. Here are 5 reasons why Indian markets will remain volatile in the weeks ahead:

1. Trump’s surprises: The President-elect continues to surprise global markets, mostly in the wrong way. His ‘Make in USA’ obsession has already rattled his trading partners. Trump has threatened German automakers who make their cars in Mexico for export to the USA with a border tax. Trump’s growing proximity to Russia and castigation of NATO has unnerved European countries. With just days left for his inauguration, markets are jittery over what new surprises might follow.
2. Brexit: Across the Atlantic, the UK is doing its best to keep anxiety levels high for world markets. UK Sterling is at a three-month low on fears what UK Prime Minister Theresa May might say as the country heads for a ‘hard’ landing on account of Brexit. May is expected to spell out a 12-point plan for Brexit, which she hopes will give Britain a clean exit from the European Union. However, business leaders are expecting a disorderly crash landing for the country as the PM takes an uncompromising stand on the issue.
3. Oil Prices: Oil markets are at a crucial juncture. Though the main oil producing countries have agreed to keep production under check, adherence to the cuts is a major issue. Analysts are closely tracking production data by major oil producing countries. Further, Trump’s action on increasing domestic oil production and allowing exports is also keeping oil markets on the boil.
4. Budget: Post demonetisation, Finance Minister Arun Jaitley’s Budget is expected to announce a series of sops for the tax-paying population. Jaitley will have to pull out a number of rabbits from his hat to propel growth. IMF has recently reduced India’s GDP estimate from 7.6 percent to 6.6 percent. The Finance Minister will have to incentivize growth to bring the curve back closer to the 8 percent level as soon as possible.
5. State elections: Markets will react to pre-poll announcements and speeches as important states go to the hustings. Political observers view the Uttar Pradesh election as a precursor to the general election in 2019. The outcome of the election will decide on the financial policy the government will take adopt the next two years.