‘Demonetisation bold step, effects for two quarters’

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Mumbai, Dec 27 (IANS) Demonetisation is a “bold step” and its impact will last for two quarters for various industries, Reliance Capital’s Chief Investment Strategist Madhusudan Kela said on Tuesday.

“Demonetisation is the biggest reform or step taken by any government anywhere in the world in 2016. It is a bold step. The government was aware of the fact that there would be hiccups. That is why the government asked for time till December end.

“It (Demonetisation recovery) is going to take longer than what was expected by and large at the beginning. People thought it would be over by 40-60 days. Maybe, there could be two quarters of impact in the various industries,” he said in an interview with BTVi.

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There could be more than two quarters of impact in some sectors and pockets, he added.

“If demonetisation recovery takes more time that what the market is anticipating, it could hurt markets,” Kela said.

On the whole the pain was extremely hard but demonetisation will change the use of cash culture, he said.

“The only concern is jobs. Job creation remains a key monitorable,” he said.

He said higher domestic inflows have been coming into the markets after demonetisation. Equities have been emerging as an attractive asset of households while traditional instruments were losing sheen among them.

Elaborating on the government’s possible moves in future, he said the government has the room to provide the fiscal stimulus at the moment as it is in a sweet spot with regards to fiscal situation.

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According to Kela, if the crude oil prices go up disproportionately, it will be difficult to pass on. The government may consider excise duty cut if fuel prices continue to rise, he said.

He said commodity producers have had a strong 2016 and surge in prices of commodities was due to inventory de-stocking. China has been steadily downsizing its capacity. “I don’t expect commodity prices to crash in 2017 even though they could correct,” he said.

Speaking on the banking sector, he said that digital disruption would not impact banks significantly in short term and there are some bottom-up opportunities in select banks.

On impact on consumption sector, Kela said the cash ban derails consumption. “I will be extremely selective on consumption universe and not in a tearing hurry to buy into the consumption theme,” he added.

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