We look at 13 things that will make a difference in 2013.
Will GST pass muster?
There is no consensus yet among the states and the Centre on the proposed goods and services tax (GST), which could significantly boost economic growth.
“Our calculations indicate GST implementation can boost GDP growth by around 100 bps...the actual effect is likely to be higher given the positive implication on prices, trade and government revenues and hence (expected) higher capital expenditure,” Suvodeep Rakshit and Indranil Pan of Kotak Mahindra group said in a note. Two sub-committees set up to resolve issues have missed the December 31 deadline.
Cash injection a gamechanger?
The government rolls out its ambitious plan to directly transfer cash through select welfare schemes to bank accounts of beneficiaries in 20 districts starting Tuesday, instead of the 43 planned earlier. If done well, this will be a huge gamechanger that will have ramifications at the hustings, for inflation and to India’s consumption story. Most importantly, for the first time, full money will reach the intended beneficiary. In all, there are 42 welfare schemes which cost `3.3 lakh crore annually, a lot of which will be added to the list. Most studies point to poverty alleviation and reduction in inequality as a direct consequence of cash transfers, but the risk of stoking inflation remains high.
More bang per buck?
Rupee is seen trading in the 53-59 range versus the dollar during the year, given a high current account deficit and risk aversion due to the fiscal cliff in the US and developments elsewhere in the world.
Volatility in the exchange rate continues to be of concern. “We cannot rule out the possibility of rupee falling to 60 per dollar,” said Abhishek Goenka, founder and CEO of India Forex Advisors.
Higher foreign investments amid better investment climate in India may offer some support to the currency. However, it may not be enough if the import bill continues to be high due to sticky global commodity prices. 2012 was marked by the rupee falling to new record lows several times – it touched a low of 57.14 to the dollar during the year and has depreciated 3.6% over this year.
Will investment cycle revive?
Slowdown in economic activity is bottoming out and investment activity is expected to see a modest recovery going forward. Investment cycle can see a slow revival, given further structural reforms and implementation of infrastructure related projects to loosen up supply side constraints, said Leif Eskesen, chief economist, India & Asean, HSBC. A pick-up in investment cycle will also help.
Are earnings upgrades likely?
Analysts are more bullish on earnings growth two years from now than they are on the year ahead. Downgrades continued to rule for one-year forward earnings revisions (though expectations have improved), while two-year forward earnings saw upgrades leading for the third month in a row, according to a December 28 note from global brokerage Morgan Stanley. “...the 2-year forward earnings revision breadth remained in positive territory for the third month running, touching a two-year high of 4.9%,” Sheela Rathi, Ridham Desai, Utkarsh Khandelwal and Amruta Pabalkar said in the note. Consumer staples has seen more upward earnings revisions, while telecom has seen the most downward earnings revisions on a two-year forward basis. Consensus expects earnings to grow 8.3% this fiscal and 13.9% in the next.
Will debt do well?
Lower yields and better liquidity – that seems to be the outlook on the debt street.
Analysts expect the Reserve Bank of India to reduce interest rates by 100 basis points during 2013, in a calibrated manner. This is a positive for medium-term fixed income investors, feels Shriram Ramanathan, head – fixed income, at L&T Investment Management. “Favourable demand supply dynamics for government bonds, positive market sentiment on account of resumption of open market operations and likely policy rate cuts in the first quarter should provide a good start to the year,” he said. Long bond/ flexi bond funds and short-term bond funds are expected to perform well, while fixed maturity plans could do well based on opportunities arising out of temporary liquidity tightness.
Can equities do better?
Broader market: Sensex could touch new highs – even 22000 levels – on earnings growth and government action. “Equity is likely to outperform debt. Debt may give returns of 10-11%, while equities could see upside of 17-18%,” said Abhijit Gulanikar, chief officer - investments, SBI Life Insurance Company. Cyclicals are expected to outperform on account of cheaper valuations and fall in interest rates. Sectoral calls: The banking index could well maintain its outperformance, riding on reasonable valuations and decent earnings growth on the back of interest rate cuts, say experts. Banking stocks generated over 56.6% returns in 2012. “The banking stocks will benefit the most from RBI cutting rates as this will help reduce concerns on asset quality and also lead to appreciation in their bond (G-sec) portfolios, aiding profitability,” said Hemant Kanawala, head of equities, Kotak Mahindra Old Mutual Life Insurance. On the other hand, defensives such as FMCG and pharma, which had a superior run in the first half of last year, are likely to trail as valuations have reached expensive propositions.
Buy a house in 2013?
A correction in property prices will depend on policy decisions – such as how lending to real estate and the liquidity scenario pan out – say experts.
Overvalued markets such as Mumbai and Gurgaon will continue to remain unaffordable, while cities like Pune, Bangalore and Chennai are likely to remain attractive for home buyers. Experts also believe that Hyderabad will also emerge as an attractive market if the Telangana crisis resolves.
Demand could spurt if interest rates on home loans come back to the 9.25-9.5% range. But if the rates hover in the 10-10.5% range, demand and supply – and consequently prices – could remain unchanged.
Should you refinance your loan?
There is no ready answer for this, though interest rates are widely expected to correct in 2013, which should make new loans cheaper.
But do the math before you make the switch. Take into account the total money outgo and savings at the end of the tenure on the difference in interest rates. Also, factor in the processing fee and other costs involved in refinancing. If, at the end of it all, you are still able to save some money, do go for it by all means.
Will medicines turn cheaper?
The New Year could offer patients a much-needed breather. With the new drug price control order coming into force, the prices of about 375 drugs are likely to go down, though the industry and the authorities are still finalising the quantum of price cut. According to industry sources, the prices of drugs used in treating HIV/AIDS, cardio vascular diseases and the central nervous system related ailments are likely to go down. “The National Essential List of Drugs is rather exhaustive, though there is scope for some more drugs to be added to it. There is one cancer drug that is included in the list, which will also cost less,” said a source.
Will insurance premiums rise?
Life insurance: Insurers plan to hike the premiums on traditional plans 15-20% once the proposed new rule on specified death cover, or sum assured, is implemented. After all, if the sum assured increases, so would mortality charges. But premiums on unit linked plans are likely to remain unchanged.
Health insurance: Get ready to shell out more. Insurers have already approached the regulator for an upward revision in line with health inflation. Expect premiums to rise 20-25% if the regulator says yes. Insurers with higher loss ratios – the proportion by which the claim amount during the year exceeds the premium income – and which have completed three years in the business, are particularly likely to hike premiums. Even group health covers are also likely to cost more as the players plan to strike down all discounts on such plans. The hike here could be as much as 30%, say experts.
Motor insurance: Third party premium could rise 20-25% for commercial vehicles and 5-10% for private cars and other vehicles. With the dismantling of the motor pool where insurers used to share the risk arising out of third party damage, insurance companies will be more cautious on the risk underwritten by them. As such, insurers are in the process of re-engineering the premium rates for own damage segment as well.
Will travel cost more?
Travel by air could get cheaper or stay at the same level. According to experts, airfares are already very high and the airlines have realised that. Hence, with competition growing, airfares could be competitive for domestic travel, though much will depend on fuel prices and resumption of Kingfisher flights. Fares are also expected to level-down for travel on international routes.
Travelling by AC chair car is going to get expensive by 5-7% with the increase in food prices.
Will Mukesh Ambani unleash 4G?
Experts believe there won’t be any major impact of the impending rollout of 4G this year even if it is priced aggressively, mainly because there are few 4G-enabled devices available and at unaffordable prices.
However, the launch of 4G can bring down the prices of 3G to a point where it gains mass acceptance. “A 4G kind of a bandwidth needs to be complemented with suitable content that creates a need or a want among masses. Currently, there is hardly anything that 3G cannot handle for people to want to move to 4G,” said an expert.
But in the next 2-3 years, 4G will lead data revolution in the country because of its higher speed, quality and willingness of urban subscribers to pay.