Indian economy, banking sector and financial markets have seen unprecedented developments in the last few months. The popular ‘demonetisation’ drive coincided with unexpected Trump win in the US presidential elections giving rise to many opinions about the course of Indian economy and market. Some naysayers even saying this might spell permanent doom for Indian growth story.
However, fortunately the truth is farther from the initial fears and with the recent quarter promising growth numbers, India still remains the only beacon of light in the emerging world. The overall interest in India remains high among foreign investors, though many investors were cautiously optimistic on recovery from the impact of demonetisation. Most investors expect the impact of demonetisation to be transient and believe that the economy would recover in the next few quarters.
One could safely assume that the macro-stability would sustain as the union government continued to maintain fiscal discipline and RBI has changed its monetary policy stance to neutral. The expected roll-out of the goods and services tax (GST) by middle of the year would further facilitate the progressive economic policies of the government. Though there might be some short-term bumps, GST would lift Indian economy in the long-run.
As per our in-house research, the impact of demonetisation on corporate earnings has been mixed in 3QFY17. Although most corporates expect the impact to be temporary, companies were uncertain about the timing of recovery. Fast moving consumer goods (FMCG) companies suggested that they did see an impact of demonetisation in 3QFY17. However, demand should recover in FY18. Organised retailers said they saw continued demand strength in January and February. Companies remain bullish on GST implementation aiding growth of the organised sector in FY18 and beyond.
Capital goods companies mentioned that private sector investments remain weak. The balance-sheets of banks remain stressed due to non-performing assets (NPAs) and unlikely recovery in the near term. Overall, bank credit growth is also likely to remain weak. Cement companies could see modest improvement in demand due to recovery in rural demand and pickup in infrastructure spending.
One of biggest perks of demonetisation is the increased adoption of digital approach towards finance and investments. Post demonetisation, it has been seen that more investors are following the digital route to invest in equities, buy mutual funds, insurance and even take loans. This would go a long-way to bolster the digital economy.
The writer is CEO, 5Paisa Capital, which is the group company of IIFL.