Across the country, the queues are long and tempers are short. The overall consensus emerging among analysts is that the economy will be boosted overall, but some sectors will see blips downward due to the impact on grey markets and black money transactions.
Some stocks are emerging as clear winners this week, as analysts begin to see trends in specific sectors especially after demonetization. Recent remarks by SBI Chief Arundhati Roy and former RBI Governor D Subbarao have also helped clarify the longer-term trends.
Demonetization Winners: The Banks
A lot of money that so far had stayed under mattresses and in cupboards has entered the banking system. The result is that banks have been big gainers here. The banking sector had been reeling under rising NPAs, missing their quarterly estimates. Yet, SBI - flush with Rs. 40,000 crore+ of funds from new deposits - is now trading over its 200 day SMA. The banks that benefit the most are the ones with strong retail and chain presence that people can easily access to deposit money and open accounts - ICICI Bank and HDFC Bank.
Other beneficiaries are likely to be Housing Finance Companies that will gain from the lowering of interest rates in the coming months, encouraging borrowers; this would especially hold for firms like PNB's Housing Finance Corporation, which have a lower proportion of loans taken against existing property on their books. Such property-linked loans may become a risk for HFCs as the value of this mortgaged real estate falls and as the government continues its crackdown on assets purchased with black money. Loan providers who deal primarily with cash like Muthoot, Manappuram Finance and Ujjivan, will struggle in the short-term - and investors agree, with many stocks in this space seeing high volume movement downwards. Ujjivan has lost over 20% of its market value in the last week.
Demonetization Losers: Real Estate, Construction, Consumer goods and services, E-commerce, Auto
Real-estate was one of the first sectors to take a hit post the demonetization announcement, with major real-estate companies losing substantial market value post announcement - as much as 15%. Property deals under discussion across the country have come to a pause or have fallen through. Related industries like construction, cements (housing consumes 70% of cement produced) and paints will also be affected - the impact will include bigwigs like Ambuja Cements and Asian Paints.
However, its also becoming clear for other sectors that customers are at least temporarily tightening their purses overall. Customers postponing spending will impact stocks like V-Guard (which recently gained 128% over its 52 week low), auto purchases and food and beverage industry stocks like Coffee Day, which are being impacted short-term during a quarter which usually accounts for high sales numbers. FMCG companies like HUL and Dabur are likely to recover quickly however due to customer loyalty and strong product preferences, while ITC is likely to be affected with the impact on cigarette sales.
Why is the demonetization impact expected on consumer spending mainly in the short-term? Because the longer term effect on bringing down the inflation rate, as well as the interest rate, will be an overall boost to customers once money supply is sorted out. However it also remains to be seen how quickly money flows will be restored in rural areas and villages, since the ability of farmers to take loans for seeds and fertiliser will determine harvest and agri growth impact months down the line.
