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Impact of U.S. polls & demonetization on
Indian economy.
Impact of US Polls
The US Presidential elections took the markets by surprise with Trump winning the polls. The markets initially went into some tailspin as there have been previous concerns about possible trade barriers with other nations. We have heard talks of Mr. Trump speaking in favor of restricting entry of skilled labor from overseas countries with a view to protect jobs in US. Hence, IT sector could remain under pressure, at least in the near term.However, Pharma stocks have fared better today since there has been lesser mention on cutting down of healthcare costs. Having said all this, the tone of the introductory speech was more welcoming where he did mention working with all nations together though there was a distinct mention of keeping US interest in the mind first. Markets will watch closely now about what president elect says over the next few weeks
Impact of DemonetizationOn the domestic front, Government has clamped down on the prevailing black money issue by imposing a ban on the existing Rs.500 and Rs.1000 currency notes. Even as this step may impact the near-term GDP numbers because of a possible slowdown in economic activity, the longer term impact will be significantly positive. A large part of the parallel economy is likely to flow in to the formal system, which in turn will boost the GDP.
Market ImpactVolumes may see a dip in the near future especially from the retail investors. However, the HNI and institutional volumes may not be impacted significantly. The volumes will pick up over medium term to long term.
Impact of Demonetization: Sectors which can get positively impacted
The banking sector is expected to benefit as more money will flow into the formal sector. We expect banks to benefit in terms of more deposits, especially low cost deposits. However, in the near term, banks may witness higher stress on assets in the real estate sector.
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Apart from these, we expect those sectors to benefit, which have a higher presence of unorganised sector – for eg. Plywood, tiles, batteries, etc. The building materials sector may get impacted on the back of slow demand in the near term to medium term as all transaction to service providers like architect, carpenter, painter, labor will get impacted as a large proportion of service providers don't provide bills. However, over the longer term, organised players will be positively benefited with this move as a large part of unorganised market will now shift to organised since the price differential between the two is will come down. Unorganised segment form about 80% of the plywood business, 40 per cent in laminates and 50 percent in ceramic. This is in line with the government's plan to implement GST and weed out the players who are avoiding taxes. We were expecting organised players like Kajaria ceramics, Somany ceramics, century plywood, Greenply industry, Greenlam, Cera sanitaryware to benefit post GST implementation but PM's move will benefit the sector earlier than expected barring near term impact on demand due to lower transparency.
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Impact of Demonetization: Sectors which can get negatively impacted
Real estate sector is likely to witness pressure, on expectations of a slowdown in sales. With a squeeze on cash availability, the sector may witness lower sales which, in turn, might lead to lower prices. Volumes may get impacted as potential buyers postpone purchases on hopes of reducing prices. Large players who do not have cash dealings may feel limited impact.
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Housing finance companies is likely to witness some stress on loans given to real estate developers who is likely to face liquidity crunch in the short term.
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Jewelry companies will also get impacted as they see slow-down in sales
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Consumption sector may feel the impact as there is a temporary slowdown in spending. These companies had got impacted in the past when PAN card was made mandatory for high-value transactions.
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Some percentage of sales in the auto sector happens on all cash basis and that will negatively impact the sector – especially the two wheeler demand. Liquidity crunch will likely impact passenger car demand. Ban will also impact economic activities and that could impact commercial vehicle sales.
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