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Wednesday, January 27, 2016

Will Modi kickstart reforms to reverse the bearish market sentiment? - a guest post

Global stock markets have seen one of the most bearish January trading in history. Some experts are calling it a 2008-like bear market.

Bull markets are supposed to climb a wall of worries. The big worries in 2015 were a possible exit of Greece from the Eurozone, tensions in Ukraine and an interest rate hike by the US Fed.

Those worries have been absorbed by the market. This year's worries are a shrinking Chinese economy, continued turmoil in the Middle East and plummeting oil prices.

In this month's guest post, Nishit opines that falling oil prices will be a boon for the Indian economy, and passing of the GST Bill will boost bullish sentiments in the stock market.

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The New Year has begun with a massive fall across global stock markets. It is the China fear factor which is causing investors to take out money and flee. The information about China is nothing new. All this has been known for quite some time. Most selloffs need some trigger and then it becomes self sustaining.

India is well placed due to low crude oil prices. The year 2016 has to be the year of major reform. Major reform means passage of the GST bill in the budget session. If the GST bill goes through then it will be a major sentiment booster for the folks who pour money into Indian markets.

Every bull market has corrections and this is no different. 2016 is also the year of elections in various states where BJP does not have major influence, viz. Tamil Nadu, West Bengal, Kerala and Assam. Whatever they gain out there is a bonus.

The real electoral test for BJP comes in Uttar Pradesh in 2017. This is the last budget where major reform is expected, post this it will be just building on what has been initiated.

The money being pulled out is not India specific but all across the globe. Global risk trade is off and the money will seek safe pastures like US bonds or US markets.

Modi has initiated several reforms in the Power sector, Telecom sector, and subsidies that will benefit India in the long term. There is a game changer which every Prime Minister needs; for Modi it is the GST bill. Modi has aligned the smaller parties isolating the Congress. Now, it is only a question of playing his cards right.

Tax reform is what India needs as major portion of the population does not pay taxes. Increasing service tax is one way of plugging the tax gaps.

Politically, with the Dalit student suicide and various untoward incidents, the Modi Government is being cornered by opposition parties. Elections are won on sentiments and 2016 is the make or break year for Modi.

The current dip is a buying opportunity. It does not take much time for sentiment to turn and the markets to rise again. Even if the markets go in for a longer term correction, good companies will continue to thrive.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money ManthanYou can reach him at nish.stockid@gmail.com)

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