India has a diversified financial sector consisting of Banking, Stock Market, Insurance companies, Mutual funds, Non – Banking Finance companies, Commodity market, etc. where banks predominate more than 64% of the assets held by the financial system. Financial Year 2016-17 saw a huge shift in the people’s behavior and as a result Mutual Funds, Equities and Insurance sector achieved new heights in term of Asset under management. Also there were many positive steps taken by the government to revive the economy. Let us know look at what all changes occur in Indian Financial System during last Financial Year.
Direct Equity, Mutual Funds, Commodity and Debt Market
- Indian Equity Markets were positive for the first 6 months until September 2016 where they fell down by 2% after the announcement of surgical strike by Indian Army.
- Two major events – Demonetisation and US President Election kept Indian Market volatile and market traded in a range.
- For the whole year gold traded in a range of Rs. 26500-29000. However, during demonetisation Gold was sold at high rate of Rs. 70,000 per 10 grams at few places.
- The inflow from Foreign Institutional investors (FII) and Foreign Portfolio Investors (FPI) was lower than expected this year. FII’s and FPI’s pumped around Rs. 25,000 Cr. in equity market and withdrew more than Rs. 45,000 Cr. from debt market.
- For the first time after 2008, this financial year saw a net outflow. The money flow was towards other emerging countries as they generated better returns than Indian Equity Market.
- According to recent statistics in 2016, 2.4 million new demat accounts were opened with IPOs which shows a growing interest of equity among the common people.
- The AUM (Asset Under Management) of Mutual Fund industry grew to Rs. 17089 lakh crore during April 2016 to March 2017. This is the highest growth recorded in the last 7 years.
- Demonetisation brought a positive impact to the bond market. As there was ample cash, banks parked the amount into government securities thus ensuring good returns.
- Modi government during 2 years launched many new initiatives regarding digital payment but it saw a huge response only after the event of demonetisation. Banking sector experienced high accretion of deposits. In Oct. 2016 bank deposits were Rs. 107 lakh crore and just in a span of 2 months they surged to R. 112.6 lakh crore. An increase of Rs.5.5 lakh crore in 2 months.
- Even after availability of huge liquidity in the banks and lowering interest rates, the lending capacity of banks did not increase. According to RBI’s latest figures, the credit growth of banks has fallen to 5% in November and the lending capacity of credit to industry has shrunk down by 3%.
- The deposit rates of banks fell by 50-75 basis points during last year which resulted in reduced cost of lending for banks. This came as good news for new borrowers.
- Along with the increase in funds banks started investing in Government securities. As per the month of November, Private banks invested Rs. 20,000 crore into Govt. Securities followed by the month of December where PSU Banks (Public Sector Unit) invest Rs. 61000 crore.
- Tough approach from RBI forced banks to take action against NPA which resulted in reduction of NPA by 1%
- This year India’s Prime Minister Mr. Narendra Modi has approved the project of Housing for all. By 2022 there will be 30 million houses built in India for lower and weaker income groups through public and private partnership and interest subsidy. After demonetization, this was good news for those investors who have wanted to invest in real estate.
- As per statistics by 2020, Indian real estate market is expected to touch US$ 180 billion.
- This year Private Equity Investments in Real estate sector increased by 22% to reach Rs. 283 billion.
- In FY 2016-17, Life insurance industry recorded a new premium amount of US$ 20.54 billion which indicates growth rate of ~22%. There was a 9% increase in the premium amount and according to the statisticians by 2020 the industry will quadruple in size with approximately 360 million policies.
- General Insurance industry witnessed net growth of ~12% taking in account Health, Motor, and other forms of general insurance.
Government Policies and Taxes:
- Central government this year aggressively approved many policies for the benefit of Indian Economy. Spending on Education, infrastructure, irrigation was proposed to increase in the Budget.
- Goods and Service Tax Bill was finally approved after making changes as per State Government suggestions. This is likely to roll out from 1st July 2017.
- 7th Pay commission was rolled out by government. This resulted in cash inflow in market.
During FY 2016-17 the government has taken several positive steps to create better atmosphere in the country. Be it demonetisation or GST Bill, one thing is sure that government working towards financial inclusion in the country. The reforms acted as morale booster for economy which will definitely show the result in the coming years. Hope Government would work with same enthusiasm and implement good decision for the betterment of this country.