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Essence of the Week
Apr 03, 2017 | Source: AxisDirect
Looking at FII flows overtime suggests a love/loathe relationship with India’s prospects. USD 11.3bn outflow in Dec Qtr followed by USD ~10.5bn inflow in Mar Qtr. Persistent growth, gradual reform bent in policy thinking, fair amount of resilience to external shocks (oil price & trade cycle) and to internal shocks (droughts, political change, demonetization) should have attracted enduring commitment. Alas, there are such things as flings!
USD/INR breached the 65 level this week, ending at 64.9 on Friday. FII inflows on the back of positive INR news (like GST) and dovish ECB should keep the rupee near current levels in the near term. But, we continue to expect the exchange rate to depreciate by ~3% this year. Failure to pass Trump healthcare will likely get compensated through a generous economic plan. Trump’s team is already talking up the USD 1 trillion infrastructure spending plan and tax cuts (expected in August). Before that, the strength of the US economy has already got the hawks in the Fed talking of speedier rate hikes; all USD positive events, and another fling in the making.
GST implementation is on its last lap after necessary bills were approved by parliament. On Thursday evening the finance secretary provided clarity on most sticky points. Only a few grey areas remain which should be clarified in the next few weeks.
2017 Finance Bill was passed with several amendments and forcefully too (Lower house did not accept Upper house corrections). Some amendments have caused a stir by accusing the government of a power grab. Key changes are:
Watch out for:
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RBI
FII
USD
INR
GST
Demonetization
Income Tax