The state elections for Gujarat and Himachal Pradesh came in favour of the BJP leaving the Congress party with just 4 states across India. The victory margin in Gujarat was much narrower than expected and the Congress managed to vastly outperform the BJP in rural centres although the BJP continued to dominate the urban centres. The market was highly volatile with the Sensex crashing by 600 points in early trades before the leads reversed in favour of the BJP. The Nifty eventually closed over 800 points up from its lows. The BJP could now focus a lot more on the agrarian sector in the year ahead.

The US markets rallied to a new high after the Republican Party appeared to be agreeing to a tax cut formula. The proposed tax cuts are likely to substantially reduce the tax burden of US corporates even as individuals could see their tax liability being deferred. Trump is expected to sign the bill before Christmas which means it will be effective from January onwards. The tax cuts were one of the promises made by Trump and could have a salutary impact on consumption and spending in the US economy. Not surprisingly, treasuries retreated even as equities touched new highs.

The Income Tax department is likely to sent notices to HNIs who have traded in Bitcoins during the last 1 year. There are estimated to be nearly 4 lakh Indians who traded Bitcoins during the last year. There were nearly 2 million Indians registered on the 9 Bitcoin exchanges. The IT department will now be sending notices to these traders calling upon them to pay the capital gains tax on profits made on Bitcoin. Since Bitcoin is treated as a non-equity asset, it will attract short term capital gains if held for less than 3 years and LTCG if held beyond that. The STCG tax will be at the peak rate of tax.

The controversial Financial Resolution and Deposit Insurance (FRDI) Bill is unlikely to be tabled in the current winter session of parliament. That means the bill will be only taken up for consideration in the forthcoming Budget session of parliament. One of the negative implications of the FRDI Bill is likely to be the Bail-In clause. This is similar to what Cyprus tried by almost forcing its depositors to partially fund the bank’s losses. This could be largely unpopular move as many pensioners and retired people hold their life savings in bank accounts and that could be endangered by the FRDI.

Morgan Stanley expects five key factors to drive the market in the year 2018. Firstly, MS expects a gradual revival in the capex cycle in the year 2018, which could have positive downstream effects on other sectors. Secondly, MS expects core inflation to be leaning on the upper side due to a combination of strong oil prices and inflation moving up across the world. Greater consumption spending will also drive core inflation up. Thirdly, MS expects central banks globally to adopt less expansionary policies although monetary policy may still be accommodative. RBI rate cuts may be largely ruled out. Fourthly, corporate credit risk could be a potent issue in the coming year with implications for banks. Lastly, China could be the big factor globally; both from an economic and a geopolitical standpoint.

Adani Enterprises has decided to cancel its $2 billion mine building deal in Australia after the promise of concessional funding did not come through. This was to help construct the Carmichael project in the state of Queensland. With the change in government in the state of Queensland, the new left-leaning government had come to power on the back of Adani-bashing. Also China had withdrawn some of its funding lines for the project after its experience with RCOM in the recent past. The Carmichael project is expected to destroy the Great Barrier Reef, putting environmentalists up in arms.