Shishir AsthanaMoneycontrol Research
The abiding image that the word demonetisation conjures up is long lines at ATMs. But the aam aadmi has taken demonetisation sportingly, thanks largely to very supportive, patient and hard-working banking staff. There were few cases of misconduct or riots reported. But while the aam aadmi’s troubles will reduce as more cash comes into the market, those of the industry will continue for a few months.
CLSA in its report called ‘The Demonetisation Reset’ points out that this would lead to large disruptions in the near term but sees the long-term story attractive. Various broking firms have tried to gauge the impact of short-term disruption that sucked cash out from the economy.
Here is a summary of the impact of demonetisation by various broking firms.
Real Estate: The real estate sector feels like someone ran a steamroller over it. Nearly 30 percent of black money is reportedly generated in the real estate sector, and analysts expect it to be the worst hit sector.
Credit Suisse feels that rural housing will be marginally hit, with the effect mitigated by a better crop and government support for rural housing. However, growth is expected to slow down considerably. Urban housing will see shrinkage for a few years, feel most of the analysts.Cement
: Being largely dependent on the real estate sector, cement is generally perceived to be negatively hit by demonetisation. A channel check of cement dealers by broker Nirmal Bang highlights that demand has declined by 20-50 percent in various regions. Southern states were relatively less affected than northern states.
Deutsche Bank says that daily volumes have fallen by 25-80 percent, with the least in Rajasthan and steepest in Uttar Pradesh. Despite the fall in demand cement dealers have held on to prices. Dealers are watching how the demand situation pans out as liquidity eases before deciding on a price increase.White Goods
: According to a Deutsche Bank check on distributors, sales of white goods in major cities has been hit by 70-80 percent. The dealers and retailers Deutsche Bank spoke to expected November sales to be the worst, followed by some recovery from December onwards. Full scale recovery might be possible post Q1 given the weak consumer sentiment and de-stocking before increased tax rates from GST implementation kick in from April 1.Metals and mining
: Mining involves payment of wages to the largely contract labour force in cash, and this has hurt production in many mining areas. In metals, steel has taken a hit largely on account of slower construction activity. A Deutsche Bank report says that secondary steel mill capacity utilisation has fallen to around 20 percent as compared to 50 percent earlier. Organised players, however, are less impacted and might even gain at the cost of unorganised players. Autos
: Indian auto sector was hit severely in the initial days of demonetisation. However, the drop is expected to be short-lived. CLSA feels that demand will gradually resurface over the next 3-4 months as the cash availability situation normalises. Impact on demand will be the highest in the commercial vehicle segment, followed by passenger vehicles and then two-wheelers, says the CLSA report.Consumer:
Buying in the short term will be more inclined towards staples rather than discretionary goods, says a Deutsche Bank report. However, even the staples have been hit, though marginally, with sales of FMCG declining by 30 percent. Jewellery sales have been hit by at least 50 percent with some stores shutting shop altogether. CLSA feels that jewellery, quick service restaurants and paints will be impacted in the near-term and might see stability in FY18 and growth in FY19.