DeMo impact on Equity :Mr.Nilesh Shetty, Associate Fund Manager:
The Demonitisation exercise launched by the NDA government on Nov 8, 2017, has now become a text book case of how not to execute a currency recall. Corporate India sitting on freshly expanded capacities and having faced two years of weak demand in FY15 & FY16, due to failure of monsoons and stagnating policy making under UPA 2, was finally staring at a pick-up in consumer sentiment. The feedback from consumer companies on demand in the festive season just prior to the Demonitisation exercise suggested we were on the cusp of an economic recovery driven by better monsoons and stimulus in the form of pay commission hikes and one rank one pension payouts. Demonitisation essentially was a kick in the gut to the Indian consumption cycle which deferred economic recovery by up to 18 months. Inventory cycles which were disrupted after Demonitisation have again been disrupted due to GST and have still not normalized. After one year of the exercise it looks like RaghuranRajans original hypothesis to the government of the costs far outweighing the benefits may have been proved correct.
DeMo impact on Gold- Mr. Chirag Mehta, Sr. Fund Manager- Alternative Investments:
At the stroke of demonetization a year ago, significant amount of gold was sold to purchasers scrambling to convert their currencies at hand (which were about to turn invalid) into gold. The gold rush was so strong that many jewelers sold whatever they had on showcase and were left almost empty. A couple of months later as the remonetisation gathered pace, gold buying caught momentum largely as a inventory build-up at the wholesalers and Jewellers end. Post this was the GST scare; this led to preponement of gold buying from jewelers to build in the inventory and consumers as well. This was done to take advantage of the low tax rates before the feared high rates under GST kicks in. The GST rates were not prohibitive as feared has led to demand staying relatively buoyant. India imported nearly 132 tonnes post the introduction of GST. Surprisingly, demand has not faltered despite higher buying earlier in the year. There was a view that demonestisation would significantly reduce gold purchases but that hasn’t happened. Rather we are seeing significantly higher demand this year as compared to the year before demonetization. India imported about 640 tonnes in the first three quarters of this calendar year as compared to 510 tonnes in whole of 2016. Clearly, demonetization has clearly failed in many of its agendas including its impact on gold.
Source: GFMS, Thomson Reuters
DeMo Impact on MF : Mr. Harshad Chetanwala-Head Customer Delight
A year ago every household in India was blindsided by an unfamiliar concept: Demonetisation. The controversial event has been debated globally over the last year, and that debate will continue for years to come. Instead of getting into the debate of whether it worked for or against the economy, which only time will tell, let us delve into whether the Mutual Fund Industry benefited from Demonetisation.
Until the time Demonetisation was announced, the Mutual Fund Industry was hitting new Asset under Management (AuM) records seemingly every month, and industry observers anticipated positive growth as far as the eye could see. One could say that, along with that optimism of investors, Demonetisation actually helped the industry to attract more investments. While overall AuM has grown by 25% since November 2016, which was almost same for prior eleven months (1 Dec 2015 – 31 Oct 2016), Equity AuM grew by 36% during the same period versus growth of 19% from Dec 2015 to Oct 2016. This AuM growth is because of two things: an increase in general market levels (which propels the value of invested assets), and new inflows from investors. The table below on Mutual Fund Industry data for Pre- and Post-Demonetisation helps us understand the impact of Demonetisation on the Mutual Fund Industry.
From the above data it appears that during and after Demonetisation, a lot of people who had their money parked in their Bank accounts have moved to Mutual Funds. This is natural because with lower interest rates these days, keeping money sitting in a bank account would not earn very high returns. As they say ‘With great power comes great responsibility’! The same can be said for those of us in the Mutual Fund Industry, ‘With great inflow comes great responsibility’ – the responsibility to generate sensible returns for investors who have entrusted their money with us.
While mutual fund houses work towards that, investors have to keep in mind that their investments have come in a market which is regularly hitting new highs. It is important that investors do not have a kneejerk reaction if the market hits a correction in the near future. So while the debate on the pros and cons of Demonetisation will continue in multiple forums for years to come, investors have their strategy cut out: stay invested with the right funds and enjoy the benefits down the line. From our perspective, Mutual Fund houses should continue to focus on what works best for investors and follow the investment mandate which made investors invest their money with us.
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