Demonetization to benefit India in long term: Experts

On the sidelines of the Axis Capital India 2020 Stars conference Dharmesh Mehta, MD and  CEO, Axis Capital, Srinivasan Subramanian, MD and Head of Institutional Equities, Axis Capital, Chirag Negandhi, MD and Co-Head - Investment Banking, Axis Capital, Salil Pitale, MD and Co-Head - Investment Banking, Axis Capital and Anirban Chakraborty, Deputy CEO, Axis Capital listed their views on the recent crackdown on black money and how it is going to impact the market.

They also talked about Donald Trump becoming the 45th President of US and what this holds in store for India.

Below is an excerpt of the interview. Anuj: Historic day for the market, yesterday if you were told that Donald Trump will win and you will have a crackdown on black money via this Rs 500 and Rs 1,000 note being demonetised and the market would get away with 100 point downtick would you have taken that? Mehta: I would have taken it because this is a historic move which in long term is very positive for India. In fact, I had in fact quoted to few of my friends that I won't be surprised if we close in positive because forget the short term pain because that is going to happen for few sectors, few companies. So, long term impact for this is humungous. These are historical statements what he has given yesterday and it brings back all the parallel economy back into the mainstream economy. So, your domestic growth rates will go up in the next one or two years if not immediately in the next 3-6 months and long term every Indian wanted this specially the taxpaying Indians like me or like you who always thought that we are at a disadvantage. Yesterday they had a great sadistic pleasure of saying that wow, everybody is on the same page. Anuj: Some Twitter records were broken yesterday and you could feel the excitement among the honest tax payers that you are being brought to parity but at the end of the day while we all take great pride as Indians on the move that has taken place but there are going to be some near term headwinds and since you are part of a large bank as well I am sure you would have had so many questions in terms of the near term impact first of all on growth. A lot of naysayers believe that with the combination of Goods and Services Tax (GST) and this growth will suffer in the near term? Mehta: As we always say no pain, no gain. So, clearly there will be some pain in the interim but Indians adopt very well. I have been in this market for the last 20 years and I have seen so many radical changes happening. I was there when the whole Demat process happened and people thought this can't work and suddenly how can Demat happen and markets will freeze volumes will go away and 15 years down the line we have a huge bull market and you have got volumes which have gone up 100x or 200x. I think this is more of a 3-6 months adjustment and if you look at today the reaction of this country you are not seeing any panic kind of situation where yesterday you had some few guys at the ATM which was more of withdrawing money and there are no road closures or markets are not shut or something. India has adopted it very well and accepted the fact that we are going to live with this and people have taken it very positively surprisingly and that itself tells you that the pain may not be as long as what people think or fear today. There will be some pause but as soon as the new currency starts coming into the system things will be back to the normal. What happens to the old currency, either people will start declaring it or else that much of currency has vanished from the country which actually benefits the Government of India's balance sheet. You have a lower Budget deficit now will virtually go down, fiscal deficit. You will have interest rates trending downwards, you will have real estate prices collapsing clearly because demand will no longer be there and that demand will start converting because earlier it was only demand at a price. There was no supply coming at the price. Maybe that will match and come to real economy. So, there are lot of boosters like GST actually will help also in a way and this was a good positive step for GST to be implemented. So, net-net I am not negative, I think so the more positive will come out from this moment today. Q: A word on Donald Trump winning the presidency. It clearly looking like more a case of an anti-establishment vote more than anything else, but do you get a sense that pre-election rhetoric that’s over now and what we see now is more of inclusive president or do you think the market will have fears in terms of what could happen with outsourcing IT sector and all these headwinds, what’s your take on that? Mehta: If you saw the first statement of Mr Trump in with what he acknowledges the Hillary Clinton, which has not happen in the entire campaign, so you can already see the change. We all know we have been here for so many years that rhetoric before the election and post election are always different. I remember very clearly when Mr Obama came pre-election there was all outsourcing, anti-sourcing kind of view and nothing happen. In fact, for India Donald Trump is a great guy. He understand business, he has a lot of business in India, so he knows India well and he has publicly stated that he likes India and Indians. I think it is positive news for India - - so Donald Trump is a non-event for India in that sense in a major way. It is a big event globally, but India if suppose no black money issue had been there today, markets may have been actually in positive. Q: Let talk about a conference a bit now, what are the key themes I note that Suresh Prabhu is clearly going to be the highlight of the conference, but why don’t you tell us the main theme? Subramanian: The theme seen to be actually falling in place with what’s happening over the last few days including yesterday. The themes are you are seeing a government initiative, Mr Suresh Prabhu. He is being a reformer in the government, he has done enough reform and probably we will hear something more from him tomorrow. We have across all kinds of sectors right from commodities which is Mr Navin Agarwal, consumption Mr Kishore Biyani, across the fintech panel what happening yesterday for the transformation into a cashless society is the fintech panel is going to talk about it. The consumption panel is going to talk about how changes to all this cashless economy is going to have come to on this. So we are going to see across what banking sector is there - - across the board banking, consumption, reality. We talked about reality it is going to have a negative impact, how the reality sector is going to talk about it so we are seeing almost the entire microcosm of India going to be represented here. Q: Godrej Properties we all know is the marquee name in real estate market. We saw market recover today but real estate stocks did not recover. So, Godrej Properties aside, overall property market, after what has happened yesterday do you see that being a bit of a death knell for the real estate industry especially the smaller players? Subramanian: Shorter term yes but in the longer term you should look at the positives. I have been talking to about half a dozen real estate players both the large ones and the small ones, what they said first thing is that the land buying which is where the maximum amount of cash happens that is going to become cheaper in the long term. So, for the consumer, the real owner when they are going to buy land and then construct, that is going to be positive. The price of land is going to fall. The second thing is that it is the smaller builders who use cash. The large ones don't use cash. We spoke to half a dozen of these companies and they said that middle class housing across the board anywhere from Rs 20 lakh to Rs 3 crore etc it is almost entirely white because all of the middle class use bank borrowings to fund that. So, that part of the economy is actually going to benefit. It is the ones which is the pure land buying which is going to be impacted. In short term it is definitely going to impact but in the longer term it is going to be positive. Negandhi : If you look at real estate across the world it is very similar to manufacturing in that sense which is over here it should just be buy land, build, sell and repeat. It is not about using cash and therefore trying to, that being a means for cash to be deployed through etc. We are hoping that when someone like Pirojsha Godrej comes into our conference he will be able to throw some more light on how a high quality company like theirs will be able to actually come in and take some of the space that we expect some of the smaller fringe players will now have to actually evacuate because of some of the changes that are happening.