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After opening the day marginally higher, the Indian share markets registered further gains and are presently trading on a positive note. Sectoral indices are trading on a positive note with stocks in the power sector and capital goods sector witnessing maximum buying interest.
The BSE Sensex is trading up 129 points (up 0.5%) and the NSE Nifty is trading up 45 points (up 0.5%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up by around 0.6%. The rupee is trading at 68.12 to the US$.
The news from the US financial markets suggests Mr Trump is serious about the promises he'd laid in his first 100-day plan as the President. After taking charge as the 45th president of the United States, Trump's administration has been active in making a number of policy changes. A recent change by Donald Trump is pulling the US out of the 12 nation Trans-Pacific Partnership (TPP) trade deal.
As per the news, Trump argued that the TPP deal was harmful for the citizens and manufacturers in America and signed a withdrawal from the pact.
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The above development stands good for India. India wasn't a part of TPP and if the deal had gone through, India would have lost its business to TPP nations. So the US moving out of TPP will keep Indian exports competitive in the global framework in the coming months.
As for investors, this is a reminder that geopolitical equations and their changing nature deserve attention while taking into account an industry's growth prospects. And within an industry, it may pay well if the investors take care to analyze and give more weightage to companies that are better geared to withstand the impact of such developments in the future.
Many hopes tied on the upcoming Union Budget 2017. The budget comes within months of demonetisation and market participants are wondering what measures the government will take to stimulate the economy.
Many believe the government will reduce tax burden in the budget and will support economic growth by spending more.
Also, as per an article in the Economic Times, the focus area in budget is to boost the rural economy and aid the housing sector and small businesses which are hit by demonetisation.
How the government goes about the above changes will be known on 1st February. What is given is that high government deficit will stand as an obstacle for all of the above developments.
Please note that India's government deficit to GDP ratio is higher than most G-20 countries. This is seen in the chart below:
Despite running a high government deficit, India continues to lag socio-economically with a widening gap between the rich and the poor. As per Credit Suisse's Global Wealth Report of 2016, India is the world's second most unequal country after Russia.
Therefore, the above facts make it clear that government spending in India is sub-optimal and the intended beneficiaries are not being targeted well. For example, see Vivek Kaul's view on how the Food Security Act fails to provide food security.
We believe that for economic growth to pick up, there should be growth in private sector investments. And the government should come up with initiatives that foster such growth.
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