Demonetisation: India at an inflection point

I could happily dedicate this column to mid-cap stock ‘x’ or ‘y’ or write about the biggest listed stock — the country itself. I would rather the latter Stock Market Trading Tips

These are my reasons why India’s third biggest inflection point (after August 15, 1947, and July 1991) transpired last week.

One, the demonetisation achieved what governments struggled to achieve for decades — wiped out a few lakh crores of unaccounted cash overnight.

Two, this demonetisation extinguished the government’s corresponding liability in one stroke.

Three, this has raised the visions of a zero fiscal deficit, something we never thought we would see in our lifetimes. 

Four, this could strengthen the rupee and moderate the national cost structure Stock Market Astrology Tips

Five, the substantial inflow of funds into the banking network could reduce interest rates.

Six, the interest rate meltdown could transform the health of corporate balance sheets and the cash-intensive infrastructure sector.

Seven, the consequent inflation decline could be most visibly manifested in saner pricing of land and real estate (and, hence, every single product and service). 

Eight, the mountain of resources available with the government could accelerate infrastructure spending and put the government in an economy-driving position where China was about 25 years ago Commodity Trading Tips

So much for the gyaan. How should this translate into investable capital allocation?

Response one: I would buy into the most vulnerable sector with the weakest balance sheet — steel, what else? With the anti-dumping screens progressively in place, projected demand increase on the horizon and decline in interest rates, this sector could be the biggest turnaround (deep red to deep black) across the foreseeable future.

Response two: The country’s banking sector could be next on the list, though given my inability to read between the provision lines, I would restrict myself to the branded well-capitalised private sector banks, rather than lose my way in the PSU labyrinth.

Response three: Only from a portfolio diversification buffer, I may (big may) seek to put some cash into bonds, on the condition that when interest rates decline and bonds appreciate, I could encash and return to equity Nifty Trading Tips

Response four: The GST coming into play (whenever) means that much of the national upside is likely to be captured by the organised sector; within the organised sector by the larger ones enjoying access to abundant funds; among those who enjoy abundant funds, it is likely to be captured by those who possess superior economies of scale (inevitably listed companies).  

The moral: Well-managed listed companies could be the best demonetisation play. I would stay largely invested across where I was invested anyway patiently through a challenging short-term, convinced the market will reward me with better discounting, faster than increased earnings, and followed by a time when increased earnings are coupled with stabilised discounting.

The non-equity dimension of the demonetisation excites me more: Politicians becoming humbler, extortion syndicates unable to figure how to get cash from my Paytm into their tijoris, enhanced faith in a word called “compliance” (we mocked it on the cocktail circuit), the Joneses evangelising balanced living, higher faith in providence, people like you and me venturing into national service and countries turning to India for transformative guidance. All because one man called in high denom currency notes one night Intraday Trading Tips