How demonetisation would impact India's GDP growth?

Thu, 24 Nov Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

India is primarily a cash based economy. As per 2011 census, 31% people reside in urban and semi-urban areas where banking connectivity is weak. Further, India is second to Japan with cash to GDP of ~10.9%.

The demonetisation has shocked the economy to a grinding halt. The consumer sentiment is low due to lack of cash. There are concerns about the demand pickup.

There is a high cost associated with demonetisation. The costs may eat up the majority of expected benefit from unearthing of the unaccounted money.

There are talks about the impairment in India's growth trajectory for next two years. However, every estimate made on GDP is just a guess as It is impossible to estimate the exact impact.

We believe the impact on the GDP is highly exaggerated.

No doubt, we are witnessing short term hiccups. But there are some structural changes which will benefit India. The positives are way more than just curbing unaccounted money.

First, as we know any currency issued is a liability for Reserve Bank of India, which owes a particular value to its holder. So, any money not coming back to the banking system will reduce the RBIs liability to that extent.

The total outstanding value of the demonetised currency is expected to be around Rs 14.2 trillion as of 31st March 2016. Of this, Government expects Rs 4-5 trillion to be unaccounted cash.

This would improve the balance sheet of RBI and Government providing them some leeway to spend for the betterment of the economy. This may mean government might further push for a revival of government capex.

Second, majority of the activity will now be through the banking systems. i.e. the money flow would be accountable. Money which was out of the banking system i.e. excess cash will now enter the banking system in the form of deposits. Thus, in the short term, banks will be awash with liquidity. Aggregate bank deposits growth rate will rise.

Thus, with improved CASA (Current account & Saving Account) deposits i.e. lower cost of funds, banks may reduce their lending rates. Hence, benefiting various sectors and improving the consumer sentiments.

Third, this has created a fear among the black money hoarders. The parallel economy is expected merge with the formal economy.

There are talks that they may find ways and means to save some part of their unaccounted money. But this demonetisation move has created far more uncertainty in people's mind.

The fear of repeating the exercise will induce a behavioral change. That change would be a big positive for the economy.

While, the long term impact looks very promising and rewarding. The short term impact is severe.

The long queues, farmer's struggle for buying seeds, dropped consumer demand & sentiment are some of the issues that are really haunting and will take time to get resolve.

The exact impact on GDP growth is impossible to predict. It would be interesting to see how government deals with the short term hiccups and take this forward. We believe the recent announcement regarding the India's agreement with Switzerland to share bank information abodes well for demonetisation.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Top Gainers TodayTop Gainers over 1-WeekTop Gainers over 1-MonthTop Gainers over 1-YearTop Gainers over 3-YrsTop Gainers over 5-YrsTop Losers TodayTop Losers over 1-WeekTop Losers over 1-MonthTop Losers over 1-YearTop Losers over 3-YrsTop Losers over 5-YrsOnly BuyersOnly SellersMost Active StocksMost Popular Stocks52 Week High Stocks52 Week Low Stocks

INDICESBSE (Rs 0 to 1)BSE (Rs 1 to 2)BSE (Rs 2 to 4)BSE (Rs 4 to 10)BSE (Rs 10 to 20)BSE (Above Rs 20)BSE - AllBSE-30BSE-100BSE-200BSE-500BSE AutoBSE BankexBSE Capital GoodsBSE Consumer DurablesBSE FMCGBSE HealthcareBSE ITBSE MetalBSE Oil & GasBSE PSUBSE TeckBSE RealtyBSE PowerBSE A GroupBSE B GroupBSE Mid-CapBSE Small-CapBSE Basic MaterialsBSE Consumer DiscretionaryBSE IndustrialsBSE UtilitiesBSE Sensex 50BSE Sensex Next 50BSE Bharat 22BSE 150 MidCapBSE 250 SmallCapBSE 250 LargeMidCapBSE 400 MidSmallCapBSE AllCapBSE LargeCapBSE SmallCap SelectBSE 100 LargeCap TMCBSE InfraBSE ManufacturingBSE CPSEBSE Private BankBSE Diversified FinancialsBSE MomentumBSE Low VolatilityBSE QualityBSE Enhanced ValueBSE Divident StabilityS&P BSE IPOBSE SMEIPOBSE 100 ESGBSE CarbonexBSE GreenexNSE (Rs 0 to 10)NSE (Rs 10 to 20)NSE (Above Rs 20)NSE - AllNSE-50NSE ITNSE Nifty Midcap 50NSE JR. NiftyNSE Bank NiftyNIFTY Next 50NIFTY 100NIFTY 200NIFTY 500NIFTY MidCap 100NIFTY SmallCap 250NIFTY SmallCap 50NIFTY SmallCap 100NIFTY LargeMidCap 250NIFTY MidSmallCap 400NIFTY AutoNIFTY Consumer DurablesNIFTY FinanceNIFTY FMCGNIFTY MediaNIFTY MetalNIFTY PharmaNIFTY Private BankNIFTY PSU BankNIFTY RealtyNIFTY Oil & GasNIFTY SME EmergeNIFTY CommoditiesNIFTY CPSENIFTY EnergyNIFTY India ConsumptionNIFTY InfraNIFTY MNCNIFTY PSENIFTY Serv SectorNIFTY100 Liquid 15NIFTY Midcap Liquid 15NIFTY Midcap 150 Quality 50NIFTY50 Equal WeightNIFTY100 Equal WeightNIFTY100 Low Volatility 30NIFTY100 Alpha 30NIFTY Alpha 50NIFTY Dividend Opportunities 50NIFTY High Beta 50NIFTY Low Volatility 50NIFTY200 Quality 30NIFTY 500 Value 50NIFTY 100 Quality 30SECTORSAgricultureAirlinesAluminiumAsset Management CompaniesAutomobilesAuto AncillariesBanks (Private)Banks (PSU)BankingCementChemicalsDefenceDiagnosticsDronesEngineeringElectric VehicleElectric Vehicle BatteryEnergy SourcesESGEthanolFertilizersFintechFMCGFoodGreen HydrogenHotelsInfrastructureInsuranceInvestment and FinanceInvITIT (Large)IT (Others)LogisticsMediaMetalMiningIndia's Big Tech StocksIndian PharmaMNC PharmaPSUPaintPaperPlasticPowerRating AgenciesReal EstateREITsRenewable EnergyRetailingSemiconductorShippingSteelSugarSupply ChainTelecomTextilesTravel Support Services

10 results 25 results 50 results 100 results All results

Indian Share Market Update: Top Gainers and Losers