"It is a golden maxim
to cultivate the garden for the nose, and the eyes will take care of
themselves."
—Robert Louis Stevenson
(Scottish, 1850-1894)
Word
for the day
Pleonasm (n)
The use of more words than
are necessary to express an idea; redundancy, e.g., Free Gift or True Fact.
Malice
towards none
Politician hoping that the
inconvenience caused to common people by demonetization will reflect in 2019
elections will do better if they recall that people forgot trauma of emergency in
less than three years and reelected Mrs. Indira Gandhi with thumping majority.
First random
thought this morning
Three key learnings from four hour trip to the town to assess the
reaction of common people to the demonetization move:
1. A large number of common
people are looking for a sense of purpose in their life. They no longer want to
live like insects. This move has certainly stroked that sense in them. Many
termed the wait in long queues as their contribution to the nation building.
2. Though most politicians
claim to have risen from the lowest ranks in the society - their actions and
reactions suggest a total disconnect. The preparation for demonetization
suggest that PM and his team are no exceptions.
3. If demonetization is
not followed by some tangible welfare schemes to give effect of wealth
transfer, politically it may boomerang on BJP.
Sir, I beg to differ
In past one week or so, a number
of experts have expressed their views on the effect of demonetization on
various sectors and highlighted the opportunities and threats that may emerge
out of it.
The consensus certainly seems to
suggest that the real estate sector will be hit the hardest. Besides, this move
is also expected to the consumption, especially the discretionary consumption,
at least over next two quarters. The trade disruption caused by currency
shortages could have ripple effect and impact almost every other sector.
On the other hand banks and NBFCs
are mostly seen as gainers from the move as the move is expected to lead to
transfer a material part of informal sector financial transactions to the
formal sector; besides higher use of services like credit card and e-wallets
(commonly referred to as 'plastic money'). Though there are concerns that in
next couple of quarters the stress in the personal loans and MSME sector credit
could rise.
Without getting into the popular
views, I may share my subjective views by the readers. As these views are based
on my personal assessment of the situation, these may suffer from my
socio-economic prejudices and poor knowledge of finance.
I believe that demonetization of
HDNs per se brings little change in the financial system. The market
disruption is temporary and may not last beyond 2-3months. The ripple effect
may also be limited to 4QFY17 and not beyond. Moreover, the effect of
disruption would seen mostly in the unorganized sector.
Insofar as consumption demand is
concerned, the demand for non-durable and staples could suffer for two months.
After all, if I do not drink alcohol today, I usually would not drink double
the quantity tomorrow.
The demand for durable goods
however may just get deferred to FY18. It is pertinent to note that demand for
motor cycle, smart phone, washing machine, water heater, etc. is no longer
luxury for a large segment. It is rather becoming a necessity. A rise in
tax-compliance will make at least 20mn more people eligible for higher bank
credit at a time when rates may be moderating.
I therefore see the opportunity
in consumer financing sector becoming even more attractive from structural
growth viewpoint. Though the people who are looking for immediate gains may be
subject to disappointment.
The largest opportunity I see is
in the real estate sector. I mostly disagree with the prognosis that reduction
of black money stock in the system will lead to material correction in real
estate prices.
I believe that the sector is
already going under an overhaul. In the process a large majority of smaller,
inefficient and unorganized players are getting eliminated from the business.
Demonetization may just accelerate the consolidation process. I see massive
consolidation with 4-5 large players remaining relevant in each market....to
continue next week
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