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Demonetization - A step towards cashless Economy
Essence of the Week
Nov 28, 2016 | Source: AxisDirect
US suck-back of flows the dominant effect: The Indian indices have fallen slightly more than that of the average EM indices, post Trumpvictory and Demonetisation. Hence the dominant reason for the fall has been the suck-back of equity flows to the US, as the USD appreciated, with hopes of a more US Inc. focused economic policy in the US and greater infra spend in the US. However we await a clear fiscal policy to fund US economic growth and yet cut back on social spend. The Fed is also yet to form its equation with the new Govt. So things could change! As of now, Indian markets and Indian IT could bear some pain.
Effects of Demonetisation: The Demonetisation scheme is undoubtedly taking a toll on Consumption, esp. as it comes in the midst of the busiest season of the year, ie harvest and weddings. In the shorter term, it affects the following. But note, the govt is quickly organizing various mechanisms to help them too:
Have short cash cycles like the unorganized sector (cash withdrawal limits marginally raised for OD/ CC/ CA holders; NBFCs & SFBs have petitioned to RBI to allow collections in old currency)
Need money quickly like farmers for farm inputs for the winter season (seeds purchases now allowed with old currency)
Those whose sales have a cash component, eg jewelry, realty, white goods
Those who lend to the above esp NBFCs (NPA recognition eased by 60 days)
Our key NEAR TERM stance (Rules: Nil cash, Mktcap > $1bn, Max allocation Nifty 10%/ non-Nifty 2% unless exceptional circumstances like the current one)
OW Sectors: Engg & Infra (but without L&T), Resources, Oil & Gas, Pharma, Telecom
UW Sectors: Auto, Cement, Consumption (FMCG, Media, Retail), IT Services
OW by 2x Nifty wtg: BoB, Adani Ports, Hindalco, GAIL, Aurobindo, Bharti Infratel
Non-Nifty Stocks: LIC Hsg Fin, Canara Bank, Thermax, ABB, Arvind, Bata, MCX, HPCL, Petronet LNG, Glenmark s.
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