The withdrawal of Rs 500 and Rs 1,000 notes is likely to impact GDP in the short term and also corporate earnings. Its impact is already being felt on several sectors of the economy. Here is how it could impact different asset classes.
Shares in India always take cues from corporate earnings and corporate earnings are expected to be hit badly, due to demonetization. Brokerage firm Deutsche Bank has cut its target to 25,000 points on the Sensex. That is another steep fall of at least 3 per cent from the current levels. Brokerage firm Ambit Capital has cut its GDP target by a staggering 3.6 per cent, due to the De-Monetization effect. It is almost certain that earnings would suffer. A host of other brokerage firms have cut Sensex targets, as they fear corporate performance maybe poor due to de monetization.
Domestic gold prices will not be impacted by demonetization, since domestic gold prices largely depend on international prices of gold. However, demand for gold would be impacted to some extent due to demonetisation. Other factors on which gold prices depend like local levies and the currency have very little to with demonetization.
In the slightly short to medium term, demonetisation would reduce inflation which should push bank interest rates lower. Hence, finance costs could drop, while it could hit retired folk who depend on interest income. However, it could be a bonanza for borrowers. Thus bond yields and yields from fixed deposits are likely to drop.
It is a known fact that there is a lot of black money that is routed into real estate through cash transactions. This is likely to hit the real estate sector. Prices of real estate could see a sharp drop in the next few quarters. So, if you are looking to buy into real estate, a drop in prices accompanied by a drop in interest rates is a good thing.