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Modi’s attack on common man starts pinching money bags

This entry is part 6 of 15 in the series Demonetization

Economic Times from the Times Group is the mouth piece of corporate India. The anxiety attack afflicting the money bags is well documented in the pages of Economic Times for the past one week.

Some sample from today, yesterday issues.

1. Some headlines

“Despite Bankers’ Claim, Scrap for Notes Persists

The governments of UK, Australia and Canada have updated their travel advisories for India.

Whether it was a “surgical strike” or “carpet bombing” – Supreme Court

Realty Deals Hit; Sellers and Buyers Prefer to Wait and Watch.

Sensex slumps over 400 points to the lowest levels since May 2016

Rupee weakens to Rs 67.74 to a dollar

2. Currency drought leaves Mandis deserted

  • Scenes across India
    • Madhya Pradesh – Hardly any soyabean or maize trade since Nov 9
    • Bengaluru – Trade slow
    • Belgaum – Likely to close for a few days
    • Gujarat – Cotton, groundnut mandis closed
    • Ghazipur Mandi – Onion supply stopped
    • Hubli Mandi – Onion, Potato trade stopped
    • Azadpur Mandi – Slow supply of pomegranates, grapes
    • Barely 25% trade in wholesale markets – Wholesale markets business in Delhi down 90-95%.
  • Cardamom Auctions cancelled for second day in Idukki as the buyers found it difficult to raise cash for the purchase. As a result, prices dropped by 10% to Rs 1,200 per kg.

3. From the Editorial – It’s cash SOS from Rabi-sowing regions

farmer-apThe cash crunch first squeezed consumption and sales in all markets. This will extend to production, and if prolonged, lead to economic contraction.

… the entire [rabi, or winter] crop is at risk. Sowing, say reports, is stuck around 60% of the total: the lack of cash constrains the supply of inputs, including seeds. Harvesting, a few months down the line, will be a bigger problem and sales are project to be at high risk.

..Demand from cash-strapped buyers is likely to be muted, which might mean huge losses from wastage.

..The crop [fruit, vegetables, dairying and other horticulture] will start spoiling within a week of harvest without a storage infrastructure, which we lack.

..Failure to act immediately would have unpleasant consequences. Instead of the bounty promised by a good rainy season, India’s farms would reap shortage and waste, leading to inflation. It is still not too late to remedy flaws in the ill-thought-through demonetisation scheme.

4. From Op-ed article : Narendra ‘Indira’ Modi? PM seeks to champion the poor with his black money campaign

“The issues are conceptually complex, politicians who have the capacity to deconstruct the scheme and demonstrate its ultimate futility in a manner that the common man understands are scarce.”

“the money supply would not be restored fast enough to prevent lasting damage. If the Rabi sowing is disrupted, or small businesses fail because they just lack the staying power to suffer loss of business for a month, the personal cost it would entail would outweigh by far the satisfaction of seeing the rich shafted.”

“…the black money battle via demonetization is so much shadow-boxing that will knock no real villain out… One, the bulk of black money is not stashed away but in circulation… Two, most of the demonetized notes will get converted into new notes or gold or dollars… Three, if Modi were serious about stamping out black money, he would being with BJP’s own funding, taking all contributions inti bank account…”

5. Protest voices from the Sangh Parivar stable:

Note ban may have failed to fix black money: BMS

“The farmer can’t just now leave the sowing to queue up for money and when he does.. cash is finished” – Mohini Mohan Mishra, Senior Executive Committee Member, Bhartiya Kisan Sanghi

“People are talking about how not one bureaucrat, minister or big man is queuing up. Don’t they need cash?” – Baij Nath Rai, President, Bhartiya Mazdoor Sangh

6. Effect on various sectors of economy- How the move towards a cashless economy will impact your stocks.

AUTO

Demand is likely to dip for a couple of months for two-wheelers, but passenger vehicles and tractors will be less impacted. In the two-wheeler industry, around 35-45% purchases are made via financing, while the rest are though banked cash, or are simply “unaccounted“. But in the passenger vehicles segment, close to 75%-80% of sales are either through financing, or even down payments are made mostly by cheques -so this segment could face less heat. As for tractors, close to 65% of the purchases are financed, therefore the impact of cash squeeze could be minimal.

CEMENT

Companies and dealers are indicating that volumes may get impacted in the near-term as real estate demand (which is 55-60% of overall demand), especially in tier 2 and 3 cities, may get affected in the interim.Demand in tier-1 cities has been weak for the past 2-3 years. But infrastructure demand, backed by government spending which has been driving growth, is unlikely to be impacted.

BUILDING MATERIAL

Building material stocks would come under pressure due to a sudden slowdown. Renovation work, which drives this sector, would get impacted as most of the demand is serviced though cash. Dealer sales in certain projects too would take a hit.

CAPITAL GOODS

The impact won’t be big largely due to the B2B nature of business. However, payment to sub-vendors may face some liquidity issues.

BANKS
The move towards a cashless economy will boost savings in financial assets.

NBFCs
Asset finance companies may see short to medium term pain as a large chunk of business is cashbased. Housing finance companies to see key impact on loan against property.

CONSUMER STAPLES

The move is good for the organised industry. But in the short term, it may impact the working capital in FMCG distribution. Anecdotally, there’s always a huge panic among distributors -business may be impacted in the short term with liquidity choking up, thereby impacting FMCG revenue growth.

JEWELLERY
There will be a shift from unorganised to organised sector in the jewellery industry.

TELECOM

There’s no material impact as average transaction size is very small. However, slowdown in smartphone sales could potentially slower adoption of mobile broadband subscriber penetration.

PAINTS

Paint companies which are into big project sales, deal in cash component worth 30-40% of sales, while for shops which have higher retail sales, cash component could be 70-80%.Therefore, paint companies could face fall in sales in the short term.

PHARMA

Demonetisation is not expected to have any major impact on the Indian pharma market and demand is not expected to get impacted in a big way.However, luxury hospitals may see some impact due to spending cuts.

Series Navigation<< 48 demonetisation deaths: Now, overworked bank manager dies of heart attackWhat Chameleon BJP said in 2014 about Demonetisation? >>

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