Investors watch note ban, hope for quiet fadeout

Analysts also expect demonetisation to impact economic growth, which, could dent the financial performance of companies

Experts say the markets, for now, will focus on how the government tackles note ban and how soon can normalcy be restored.
 
“The markets are not worried about the winter session of Parliament this time around, including the progress on GST implementation, but are concerned how the transition of the note pullback will take place. Although Parliament will see this issue being raised, the markets will focus on ground reality. Cash demand will remain high till December 2016, and the markets will worry how soon these issues are resolved,” said G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

 
According to him, given the sharp fall over the past few days, there might be a mild recovery of two-three per cent from the current levels over the next few weeks. “Given the demonetisation impact, the markets will take one more quarter to go back to record high levels,” he added.
 

Following the outcome of US presidential election and note ban by India, markets have seen a fall, with Nifty50 index slipping over 400 points, or 5.1 per cent. Now the winter session of Parliament has begun, where the Opposition parties are confronting the government over demonetisation, among other issues. On the other hand, the government is trying to get key legislations related to the goods and services (GST) Bill passed.

 
Analysts also expect demonetisation to impact economic growth, which, in turn, could dent the financial performance of companies, especially those in the consumption-related segment.
 
According to Mahesh Nandurkar, India strategist at CLSA, a pick-up in corporate earnings in the December quarter onwards is a possibility due to the base effect. But now, everything has to be recalibrated.
 
“A pick-up in corporate earnings will be delayed given the demonetisation move. Our view is that the earnings growth in the second half of FY17 will be 12-14 per cent (earlier 18-20 per cent). Our FY17 estimates now stand at 10-12 per cent, while FY18 estimates are 15-18 per cent. Our 12-month Nifty target is 9,300-9,500 levels,” he added.

 
Ajay Bodke, CEO and chief portfolio manager – PMS at Prabhudas Lilladher, feels that the Opposition will be united in trying to stall Parliament’s proceedings and insist that the government roll back the demonetisation move.
 
“Before demonetisation, all eyes were on progress on implementation of GST Bill. So, these are the two key issues that will dominate discourse, and on which markets will keep tabs on. The upside will remain capped at 8,700 levels. The downside, too, appears limited from here on,” he said.