Analysis of De-monetisation and it’s ensuing effects on stock market, sectors and stocks

The announcement of De-monetisation on Nov 8, 2016 has both short term and far reaching consequences on various sectors as enlisted hereunder;

1. *Banking:* 👍

It’s been announced by CMD of SBI that deposits in excess of Rs. 85,000 crore have been collected and this is just for SBI alone and not including other PSU and Pvt. Sector Banks. PSU Banks seem to have a distinct advantage due to the reach to all the Rural areas by their mere branch network all over India. Also, this collection has been primarily from people small/middle income groups and the collection drive is still going strong. With an assumption that the same would be over in next 15-20 days, the Banks would have collected a whopping sum of Rs. 3 Lakh crores just from Small/Middle Income groups. Further coming to the high networth Individuals or businesses which primarily deal in cash (Real Est, Gems & Jewellery and other small medium and big businesses and from professionals) and those people who have undeclared cash, another safe addition to the deposits would be around Rs. 3 to 5 lakh crore (excluding people who might not want to declare and hence do not deposit the cash and would be worthless paper).

Hence, the total collection would easily end up in the range of 6-8 lakh crore. These deposits are being made in Savings or Current accounts by the citizens.

Assuming that the savings rate is 3-4% per annum and the average Lending rate is 9 to 14 % per annum, the interest spread would be an average of 8 percent in favour of the banks. Hence the profits of the banks (esp. PSU Banks) would end up zooming by Rs. 56000 crores per annum or almost 14000 crore per quarter starting Jan 2017 due to windfall earnings. Hence bigger networked Banks (esp. PSU Banks with high branch networks) would be one of the biggest beneficiaries of De-monetisation.

*PSU Banks: SBI, Union Bank, PNB, BOI, Can Bank*
*Pvt. Sector Banks: ICICI, HDFC Bank.*

2. *Real Estate:* 👎

This sector would be the worst hit by the De-monetisation since not only would cash dealings during Purchases would be hit, customers who had the purchasing power suddenly would have vanished due to lack of currency notes. 
Besides that, people who are waiting to buy and invest in Real Est would be the biggest beneficiaries since the prices would end up collapsing by 30-50% due to lack of demand and other monetary pressures on the Developers due to high cost borrowings done in the past

Hence, Real Estate stocks would be under severe pressure for the next 5-6 quarters in terms of top line and more so in terms of bottom line.
*Eg. DLF, Oberoi Realty, HDIL, Hubtown, India Bulls Real Est, Sobha, DB Realty.*

3. *Information Technology:*👎

This sector would also be a laggard since the Rupee would technically gain in value and become stronger due to the De-monetisation (and cancellation of huge sums of money which may not return back in the economy), thereby necessitating a re-calibration of the exchange rates. Hence, any Dollar or revenue earned in foreign currencies would end up being converted at a far lesser rate when exchanged into INR.

*Eg. Infosys, HCL, TCS, Wipro*

4. *Cement Iron and Steel:* 👎

This sector would also face a slack due to the consequent fall in Real Estate sector however the fall may be somewhat arrested by the amount of Governmental spending on Infrastructure projects due to buoyant tax revenues due to De-monetisation.

*Eg. Ultra Tech Cement, ACC, Ambuja, Vedanta, Tata Iron, India Cements, JSPL etc.*
5. *Capital Goods and Heavy Equipment Manufacturing:* 👍

This Sector should be able to gain a lot due to Governmental spending on all Infrastructure projects once the revenue is collected by the Government. PSU sector would be the major beneficiary of big developmental projects and equipment manufacturing.

*Eg. BHEL, L&T, Siemens *

6. *Pharmaceuticals:* 👍

Mostly MNC Pharmaceuticals would stand more benefited due to the De-monetisation since the Rupee value would stand increased against the Dollar and other Foreign currencies and it’s possible that such Companies start paying a Higher Dividend or allot Bonus Shares to their shareholders (esp. due to majority parent shareholding). For Indian Pharmaceutical Companies the De-monetisation program would either be neutral for Companies which sell majority products in India or negative for Companies engaged in export of Bulk drugs and formulations.

*Eg. Sanofi, Glaxo, Pfizer, Merck etc*

7. *FMCG:* 👎

Since the consumer spending would stand restricted for a short period, FMCG Companies might face a problem in terms of selling of their products and in increasing their revenue. In the next few quarters their revenue would either remain stagnant or have a declining effect.

*Eg.  HUL, Godrej, Dabur, Proctor & Gamble, etc.*

8. *NBFC Companies:* 👎

Due to De-monetisation and the huge collection drive happening in the Banking sector, these companies would not be able to face the amount of pressures launched by all the banks in the lending market since the Banks would have all the power to lower the rates of interest to their customers which may not be possible for NBFC’s due to their higher cost of Funds.

*Eg. DHFL, India Bulls Hsg Fin, Mannapuram Gold, HDFC Ltd., Lic Housing Finance

*Happy Investing !!*


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s