The year ahead promises to be a difficult one for your money. Debris from the 2016 events of demonetization, Brexit and a Trump presidency will fly around this year. Markets will be volatile and growth may take a hit, at least over the first two quarters of the calendar year. Here is a short guide on what we expect and the best way to navigate the tough year that lies ahead.
TRENDS TO WATCH
2016 was not as glamourous as 2015 for the tech industry in India with Rs3,293.66 crore of investment coming in, according to Tracxn, a data analytics company; the sector received investments of Rs8,018.68 crore in 2015. The lending segment saw the maximum number of launches—57—in 2016. In the investment technology space, mutual funds saw plenty of start-ups, most of them aimed at making it easier to on board, transact and redeem your funds. Post demonetization, digital cash has become well-known and 2017 will consolidate this trend. The digital cash firms need to spend on ramping up the network.
Retail pipeline to get thicker
Indian retail investors will deepen their engagement with stocks, but in a systematic way and through a lower risk route. The mutual funds systematic investment plan book is now between Rs3,700 and Rs4,00 crore a month. The Employees’ Provident Fund is investing up to 10% of incremental funds in exchange-traded equity funds. The National Pension System has allowed 75% equity allocation in its life-cycle funds. This trend will deepen.
Markets to remain volatile
It is a brave person who will make a forecast for 2017 on the direction of equity markets. The impact of demonetization, debris after Brexit and a Trump-led US are all headwinds. Though the long-term India story remains good, 2017 is a year to stay belted into your ancial plans and not make hasty calls.
Interest rates to fall
An inflation targeting central bank that has a 4% rate, as measured by the consumer price index as its goal post, a wall of deposits with banks and a declining policy rate should see further cuts in interest rates. Deposit rates are already down; 2017 should be the year that transmission will take place on the lending side.
Rents to fall further
Demonetization was the last nail in the real estate coffin and some impact will transmit into lower rents. Already rents have been stagnant or declining. Expect this to continue over 2017. Good news if you’re a tenant—you can either upgrade for the same rent or look for a cheaper place this year.
TECH SEGMENTS TO WATCH
The tech industry has got an unexpected demonetization boost. Digital payment gateways have become household names overnight. Here are five segments to watch in 2017.
Payment solution providers
When demonetization hit the country, the only alternative was digital payments. One instrument that comes close to cash is a point-of-sales (PoS) terminal because of its interoperability. There is already huge demand coming in from banks to install new PoS machines. Similarly, payment gateways and payment processing companies are expected to see more traction. Companies such as Pine Labs, mSwipe, FSS and Ezetap fall in this category.
In 2016, lending was the theme in the tech industry with $215 million in investments—the highest for the industry. These alternative lending companies have attracted the attention of investors, bankers as well as the regulator. Multiple commercial banks have already tied up with these companies and investors are interested due to higher margins they bring compared to the payments segment. Companies to watch out for—Bankbazaar.com, Capital Float, Credit Vidya and Faircent.
Consumer finance and investment technology
To encourage customers to invest in mutual funds, bonds, stocks and deposits through online channels, most investment technology and consumer finance companies have spent heavily on marketing and advertisement strategies in 2016. They aim to channelize the excess amount lying in bank accounts into market-linked investments. Companies to watch out for—MyUniverse, RKSV, Fundsindia.com and clearTax
Paytm, the leader in the payment segment, will become a payments banks. Photo: Hemant Mishra/Mint
The payments segment has been in the limelight all along. For the tech industry, 2017 is going to either make or break the segment. Paytm, the leader in the payment segment, will become a payments banks. The government has been tweaking rules to make payment products interoperable so that they can be widely accepted. At present most products offered by tech companies can be used only in closed loops. Companies to watch out for—Paytm, Mobikwik, PayU, ItzCash and Oxigen.
In 2016, the National Payment Corp. of India (NPCI) launched the unified payment interface (UPI). The entire tech industry is watching it closely and has already developed products that can accept UPI-enabled transactions. Besides UPI, technologies such as quick response (QR) code and merchant pay apps are likely to be in adoption stage in 2017. Companies that can build products on these infrastructure will see a surge in demand. Companies to watch out for—Atom Technologies, o PayTech and AGS Transact.
NUMBERS TO WATCH
This is the 2016 average return for a mid-cap equity fund. An average large cap-oriented equity fund returned 2%. The good run of mid-cap funds appears to be over, but well managed large-cap funds should do better. 2017 should see some gains in debt funds if the interest rates fall further.
The five-year annualized return (loss) on gold as on 15 December was -6.16%. One-year return on gold as on 30 December was 9.20%, and five-year return was -5.81%. The return over the past 12 months is better at 7.67%. Gold as an asset class is poised to fall as the dollar gets stronger in 2017. Remember to not invest more than 5-10% of your portfolio in gold. Invest using government bonds.
The five-year SBI fixed deposit rate in December 2016 was 6.5%. This is down from a high of 8% in 2015. Expect more pressure on bank deposit rates in 2017 if inflation remains low and the post-demonetization funds with banks push rates down.
This is the interest rate on deposits in savings account offered by Airtel Payments Bank Ltd, the first payments bank to launch in India. The bank is offering a high interest rate to build a customer base as early as possible. As of now, the bank is offering only one product: a savings account.
The amount that you will have to repay for every lakh of a Rs20 lakh home loan for a 15-year period taken in December 2016 at 9.25% interest rate and a processing fee of 0.5%. This is down from Rs191,733 per lakh in December 2013 for the same loan and tenure at 9.8% interest. If banks transmit the lower policy rates further, then expect this to fall in 2017, making home loans cheaper.