VN Research & Consulting
 Like us on facebook  Follow us on twitter  Follow us on LinkedIn  IndiaNotes on Google Plus  IndiaNotes on Pinterest  IndiaNotes on Stumbleupon  Subscribe to our feeds

Stocks  A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
You are here : IndiaNotes >> Research & Analysis >> Industries >> Auto >> Research

Demonetization Drive - Which sectors will be affected?

Way2wealth | 18 Nov, 2016  | Follow Author | Add to my Favourites 
  • Rate this article
    (Average Rating 0.0 Based on 0 ratings)

  • On 8th November Government of India decided to demonetize Rs500 and Rs1000 banknotes ceasing the usage of all Rs500 and Rs1000 banknotes in India. The demonetization is being carried out to stop the counterfeiting of the current banknotes as well as to crack down on black money in the country.

  • We expect these measures to have a direct impact on parallel economy and cash transactions. Along with the introduction of GST (expected by April 2017) this constitutes a far reaching reset of the Indian economy.

  • We understand government’s move to demonetize higher denomination currency is likely to have a significant impact on the Indian economy. The move is likely to be negative for growth in the near-term, as informal sector activity, which is supported primarily through cash transactions, slows down in a knee-jerk response. Apart from boosting liquidity in the banking system, demonetization is likely to create short-term disruption in consumption.

  • However this impact should be felt only in the short run as money from informal channels getting converted into formal banking channels because of the current measure would lead to faster expansion of our GDP ( due to higher multiplier than parallel economy),thereby leading to higher GDP growth going forward.


Real estate sector is likely to be the most impacted one. In short term, real estate demand which is already sluggish could witness significant impact as it was considered to be one of the preferred routes for parking black money. However in the long term we could see significant surge in demand on account of a) Latent demand for housing in the country b) declining interest rates regime in the medium term and c) possible housing prices drop.


In short term, Auto sector is likely to witness lower demand on account of shortage of currency and uncertainty associated with the funds. However with high penetration of financing in passenger cars and utility vehicle segment (~80%) and commercial vehicle segment (90%+), the impact is likely to be minimum in the long term. In India, out of total two wheeler sold, 50%-60% are funded by financial institutions. This market may face some impact on demand in the near term which might result in postponing the purchases for few months. Also tractor demand is likely to rebound meaningfully in the medium to long term as a) agriculture income in the rural areas is already a tax free income and thus demand for its products may not get influenced by unaccounted money and b) Higher percentage of its vehicles are being funded by financial institutions.


Consumer staples will partially be impacted in the short run as the distributor and retail level adjust to the new currency norms. ~8% of the sector trades through modern trade while traditional accounts for the balance. The latter is a cash business and hence witness to the temporary liquidity crunch. Long term this will not impact demand of goods. However demand for discretionary products will see a more acute impact as the trade works primarily on Cash. This too is short term in nature. The key long term positive of this lies in the fact that the organized will gain market share over the unorganized over the years.


Cement demand to take a hit, given ~60% of cement is consumed by housing. The move on black money will likely result in demand destruction in organized real estate as well as individual/rural house construction, which will get transmitted to cement demand in due course.


On account of likely cash crunch, there will be delay in financial closures of assets like roads/bridges owned by private sector. Hence, near term negative for the sector.


Power distribution companies may face some challenges (delay in payment of bills from the retail customers) in near term due to rupee demonetization.


As people are depositing funds aggressively into the bank accounts we see significant uptick in the CASA of the banks. Due to the sudden decline of the cash economy, transaction through banks will go up significantly going forward, especially in the rural region and hence a strong positive for PSU banks. Though in the short term housing financing companies are going to witness muted growth, however in the long term we could see significant surge in the housing loan demand on account of a) Latent demand for housing in the country b) declining interest rates regime in the medium term and c) possible housing prices decline.


Cash crunch in the systems is going to impact construction and mining equipment companies as these are used by unorganized sector mainly by contractors of large companies. Also slow down in real estate sector to impact demand for steel pipes, motors, pumps, white goods, electrical goods etc.

  Read full report Click here to read the full report

About Way2wealth

Way2Wealth today has established itself as one of India’s ‘Premier Investments Consultancy Firms’, known for making investing simpler, more understandable and profitable for the investors. They offer a wide range of products & services viz: Equity, Derivatives, Currency Futures, Commodities Trading, IPO's, Mutual Funds, Portfolio Management Services & Depository Services.


For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

Technical Calls

What are technical calls?

Other Articles