|Bank notes in circulation (Mar-16)|
|Denomination (Rs.)||Value (Rs. Billion)||% share of total|
|1, 2 and 5||52||0.3%|
This move will significantly impact the Indian economy as the parallel economy will shrink drastically. This will increase tax collection of the government. However, it is too early to quantify the tax collections. In addition, the growth rate of Indian GDP will rise as more and more money will circulate in the economy through banks.
All sectors will get impacted - directly or indirectly. However, it is clear that there will be significant direct impact on real estate sector and banking sector.
Nightmare for real estate
The real estate sector account for ~11% of the GDP and most of the transactions happen in unaccounted cash. The parallel economy (Black money) has increased the real estate prices in India. By scraping Rs 500 and Rs 1000 notes, significant amount of the black money got wiped out from the economy. Therefore, it will create pressure on the property prices in short-term as the cash transaction will drastically reduce. The real estate sector is already facing muted growth.
Most of the real estate companies opened 20% down as soon as bourses opened today morning.
|Company Name||Last Price (Rs.)||% Chg|
But in long-term this step will do good for real estate sector as it will increase transparency in this sector. The top-line will also improve since unaccounted-cash will get curbed.
Good news for banks
On the other hand, banks will be the biggest beneficiaries of this policy. The circulation of money through banking channel will increase as people will now prefer to transact through banks. The CASA will also rise in few months despite the deposits of old notes by public and restriction on the withdrawals. The heavy deposits by public will further increase the liquidity in the banking system and could force banks to lower the deposit interest rates. In addition, the lower money circulation in the market will also put pressure on inflation which will further give room to RBI to cut the interest rates.
Short-term trouble for consumer durables
The move will also impact the consumptions stocks as the restriction on withdrawals from the bank accounts will impact the demand. People will prefer to buy only essential items for the next 1-2 month till the government remove the imposed restriction on withdrawals.
In nutshell, it is a good news for common-man but a nightmare for black money hoarders.