Today is the last day for exchange of the old notes. Demonetisation has been debated in these 50 days ad nauseum. There are votaries & there are detractors. Detractors are not able to find any redeeming feature in the exercise, which in their opinion, has just inconvenienced people & had no real purpose to start with. The supporters see this as a major weapon against black money, terror funding & graft. This debate could go on and on… till winter turns to summer.
Let us look at the effect on the economy & by implication on all of us. Certain sections of the economy have been notorious sinkholes for cash & black money – Real Estate, Gold & Jewellery & to a lesser extent super luxury goods.
The disruption caused due to sucking out of the old notes and introducing new notes had led to a slump in transactions across sectors. Auto sector – especially the two wheeler & the truck sector has been affected. Car sector has been affected too, albeit to a lesser extent. Similar trends are seen in other sectors too – like FMCG goods, especially the premium segments, electronics, white goods, restaurants, jewellery & real estate among others.
The disruption in some of the sectors like Restaurants, travel, FMCG goods, white goods would be temporary. Hence, these sectors have either already largely bounced back or are on the verge of doing so. Real Estate has had it on it’s chin – as it was already tottering and this cash blow would confine it in ICU for quite a while. Jewellery is another sector which dealt In cash and would see a drag for some more time.
The problems that we are facing are not some systemic problems in the economy or due to certain demand side issues. The demand is intact. There has just been a postponement of purchases in many categories. That would mean that the coming quarters would see better traction as the purchases that have been postponed would materialize.
People are getting used to dealing with less cash and are getting more & more used to electronic modes of payment. Many small, even petty establishments are accepting electronic payments. Even footpath vendors are accepting payments from apps like PayTM. That’s a huge change in a country which used to deal almost entirely in cash. Normalcy has returned in a lot of markets, across the country.
An area that is causing concern and has been widely discussed is Foreign Portfolio Investment, where Rs.30,000 Crores has apparently moved out, in this quarter. The reason this time is not just demonetization alone; it is also due to interest rates going up in the US and also due to Trump Presidency. But this is hot money & moves in and out very fast. There is nothing very surprising about this. The only way to protect this is to strengthen our domestic institutional players as well as deepen the equity participation of our retail investors.
So, what is in store for 2017 from the economy?
Demand should be back to normal in most sectors & even better due to pent up demand in a few sectors like automobiles. There can be a blip still in JFM quarter. But after that, it should be business as usual for most sectors – except probably for Real Estate.
So, for all those people who were worried about how the economy will perform after demonetization, this should come as a balm. Also, the hot money which has now flown out is expected to come in – sooner than later. India, warts and all, is still one of the emerging markets which hold potential.
The real unknown is what has the government got up it’s sleeve in 2017. Demonetisation is just the first salvo in the fight against black money & graft. There would be many other measures which would come up, like – enumeration of all real estate assets in the country, compulsory electronic payment for transactions above Rs.50,000, rule based systems in the government which could bring down citizen interaction with officials, potentially bringing down corruption, use of big data and deep data analytics to pin point those who are generating and hiding slush funds etc. In short, there is expected to be a lot of action going ahead. Some sections have a lot to be worried about. Most of us have nothing to fear.
Let me answer the other question before signing off… Is this the right time to invest or will the markets correct further? The right answer is – I don’t know. But, the economy is going to be back on the growth path sooner than most people realize. So, invest now is my suggestion.
The only thing that can disrupt this is a Black Swan event. But black swan events have become quite the routine these days… Brexit, Trump win, demonetization… Let’s accept this new normal. The world is a changed & unpredictable place. And hopefully a much more interesting & energizing one as well!
Article first published on Linkedin: What does 2017 hold out?
Author - Suresh Sadagopan | Founder | www.ladder7.co.in
#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7
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