Demonetisation, GST: Markets' expectation from Parliament's winter session

The winter session of Parliament begins today amid fears of contraction in growth in the backdrop of government's demonetisation drive to curb black money circulation in the economy, and the turmoil in global financial markets post Donald Trump's surprise victory in the US Presidential election. Rising US bond yields have already sparked concerns over foreign capital outflows.

Post the outcome of the US Presidential elections and the demonetisation move by the government on November 9, the markets have seen a sharp fall, with the Nifty50 index slipping over 400 points, or around 5.1% since then.

Experts say that the winter session of Parliament is likely to see a united opposition confront the Narendra Modi government over the problems faced by people post the demonetisation move. The Congress has sought discussion on issues relating to one rank, one pension (OROP), the situation in Jammu and Kashmir and proposed merger of Railway and Union budgets. On the other hand, the government will try to get key legislations related to the GST Bill passed that will help the bill getting implemented from its earlier deadline of April 01, 2017.

So, how are the markets likely to react to the development? Will the issues that rock Parliament dent market sentiment as well?

Experts say the markets, for now, will focus on how the government tackles the demonetisation issue and how soon can normalcy be restored.

"The markets are not worried about the winter session of Parliament this time around, including the progress on GST implementation, but are concerned how the transition of the demonetisation process will take place. Though the Parliament will see this issue being raised, the markets will focus on on-ground reality. The genuine cash demand will be effected till December 2016, and the markets will worry how soon these issues are resolved," said G. Chokkalingam, founder & managing director of Equinomics Research & Advisory.

"Given the sharp fall seen over the past few days, a mild recovery, say 2% - 3%, from the current levels cannot be ruled out over the next few weeks. Given the demonetisation impact, the markets will take one more quarter to go back to record high levels," he adds.

Given the demonetisation move, analysts also expect the economic growth to be impacted, which in turn, will dent the financial performance of the companies, especially in the consumption related segment.

According to Mahesh Nandurkar, India Strategist, CLSA, a pick-up in corporate earnings December quarter onwards was a possibility due to the base effect. But now, everything has to be recalibrated.

"A pick-up in corporate earnings will be delayed given the demonetisation move. Our view is that the earnings growth in the second half of FY17 will be around 12% - 14% (earlier 18% - 20%). Our FY17 estimates now stand at 10% - 12%, while FY18 estimates are around 15% - 18%. Our 12-month Nifty target is 9,300 - 9,500 levels," he says.

Ajay Bodke, CEO and Chief Portfolio Manager - PMS, Prabhudas Lilladher feels that the opposition will be united in trying to stall Parliament's proceedings and insist the government rolls back the demonetisation move.

"Before demonetisation was introduced, all eyes were on the progress made related to implementation of GST Bill. So these are the two key issues that will dominate the discourse, and on which the markets will keep a tab on. Given this backdrop and the global developments, the upside will remain capped at around 8,700 levels. The downside, too, appears limited from here on," he says.