Impact of Currency Revolution
on People, Real Estate, Banks, Jobs, Markets, and Living
According to unofficial reports, the ban on high denomination currency has witnessed an approximate deposit of Rs. 1 Lakh Cr in Indian Banks. Some unofficial reports also suggested that Currency demonetisation has led to increase of Rs. 2 – 3 lakh Cr worth bank deposits. In Maharashtra, BMC has already received over Rs.200Cr as property tax deposits in last 2 days.
In the short term it may have marginal negative impact on spending, which may get reflected in GDP numbers of the next quarter. In the mid to long term this move is likely to have positive impact on the Indian economy.
Let’s have a look at the impact of this initiative on various sectors and stakeholders.
Impact on Real Estate
• Old residential property prices are expecting corrections.
• Since the feasibility in cash transaction appears slim, people will avoid dealing in liquid currency, shooting up the probability of the old properties prices to fall.
• The cash component in Real Estate and housing deals remained in the range of 10% to 40% in the past. By the same percentage old housing prices are likely to drop depending on the property type.
Impact on new housing
• The correction in old residential property prices will make new properties costlier resulting in a dip in the new property prices.
• New home buyers will get homes at lower cost and will also get the support of current Low-Interest rates benefit and further likely fall in rates due to lower inflation in the near future.
• Higher Volume of Home buyers will compensate for the initial loss of higher margins due to low cost, which the real estate companies used to enjoy in the past.
Impact on Banks and Job Creation - Indian Banks are currently struggling with NPAs of over Rs 6 lakh Cr (Non-Performing Assets - Loans)
• The high denomination currency floating in India is around Rs. 14 lakh Cr. If banks receive that kind of deposits over the next few months they will be well-capitalized and strong to support further increase in GDP growth of India.
• This will help banks, corporate houses in their expansion plans and improve existing business, which will ultimately increase the income of the Indian public and will also contribute in generating more Jobs. Banking sector will witness a positive impact of this revolution.
Impact on Infrastructure
Banks will get huge deposits with this exercise and will be well capitalized with money to support the government's strong infrastructural development plans in next few years. This will drive business of infrastructure sector based companies, opening up new horizons of employment in this sector.
Corporate Restructuring and Job stability
It may also help some corporate houses to come out of debt and move towards business restructuring and restart the business with fresh strategy, which can again contribute to the stability of the existing employment.
Impact on Tax
This will definitely improve future tax collections as people will not try to evade tax anymore. Along with Tax reforms such as GST implementation, it will also help in providing simple and efficient tax structure for healthy business environment and economy.
Digital Money Market impact
According to latest RBI reports, online payments have accounted for over Rs. 86 Lakh Cr. Focus will be more on the digital money, online transactions, the internet and mobile transactions, thus encouraging physical cashless currency environment, providing a favourable platform for e-commerce sector to flourish seamlessly.
Distribution & Logistics
A more supportive environment for e-commerce sector. It will give a boost to new age faster and efficient distribution system and generate higher revenues for such companies. Imagine buying something online and getting it delivered in 30 minutes at any location by Drone or any other efficient system. All such revolutions will make our infrastructure and distribution system stronger and efficient. This is expected to get reflected in the sector over the next few years.
Impact on Electronics, Metal, Cement Furniture Sector
Strong, healthy and more transparent Real Estate sector will attract investments and will create more demand for construction raw materials and electronics products.
Other sectors
The government is looking forward to improve and enhance the efficiency of the primary sectors like Agriculture, Food, Power, FMCG, Manufacturing, Media, Law, Water, Health, Infra, etc. This currency revolution will help improve India's image from the transparency and efficiency perspective.
Impact on Equity & Debt Markets
Various other initiatives including currency revolution are likely to have very positive impact on Indian Economy in the mid to long term. Be it Indian Banks, Infrastructure, Digital, Telecom, Real Estate or Distribution sector all are likely to take the big leap forward. Equity markets may reflect this upcoming revolution in equity indices earlier than the visible impact on economy. Investors can capitalise on this revolution by investing in to basket of top diversified Equity Funds.
Inflation is likely to come down due to correction in Real Estate sector. Indian currency is likely to see some negative impact due to FIIs money outflows. But Indian banking system is still likely to have high liquidity due to current deposit drive, which will support downward movement of interest rates. Bond yields are likely to soften driving bond prices upward but at the same time recent spike in U.S. bond yields may keep the check on yield movement in the mid to long term. Within debt asset class, investors can have the allocation for Short Term Debt Funds.
This government is focusing on the most important aspect, which no other government has ever considered in past, i.e. changing the mindset of Indians through Swach Bharat Abhiyan, Jan Dhan Yojana, Black Money eradication drive, Equal Law for all, Make in India and other initiatives. The execution strategies are equally good and efficient as its plans. Government is endeavoured to create a revolution through 125 Crore Indians and it looks unique and awesome.
Let’s support, participate and gain from this revolution.
Happy investing!
