Agrees Karthik Lakshmanan, senior fund manager-equities, BNP Paribas Mutual Fund: “As far as the impact of demonetisation is concerned, the long-term impact is expected to be very positive. However, we expect disruption to normal business in the short term as 85-86% of the currency by value has been taken out of circulation. This has led to currency shortages and in many sectors regular business has been affected to varying extents since demonetisation. This is bound to affect earnings growth for financial year 2017.”
Gopani says the December quarter results will be a complete washout, as sales are down 30-40% for businesses in domestic sectors since demonetisation started. But he suggests that this is the best time for an individual to invest via systematic investment plan (SIP) as volatility is high.
If you buy at lower levels in a volatile market, it could potentially boost your long-term returns.
Fund managers suggest that direct equity investors, too, need to invest in a staggered manner over three-four months after assessing the impact. “Equity has become attractive and we are deploying funds right now. It’s a good opportunity for long-term investors as we feel we are close to the bottom,” says Prateek Agrawal, business head and chief investment officer, ASK Investment Managers.
Since demonetisation started, 31 companies in the S&P BSE 200 have touched their 52-week low, including companies such as Glaxosmithkline Consumer Healthcare, Blue Dart Express, Tata Consultancy Services, Infosys, Sun Pharmaceutical Industries and Wipro.
But direct equity investors need to be choosy about sectors, as demonetisation is expected to impact real estate, jewellery, construction, cement and discretionary consumer spending. BNP Paribas Mutual Fund is overweight on the banking and financial services space. In the case of banks, as their Casa ratio improves, interest rates will go down. This will give a fillip to retail sector lending. BNP is also positive on non-banking finance companies focussed on retail lending; while they may suffer in the short term, they are attractive in the long term.
Axis Mutual Fund prefers staple consumer businesses that have presence across the value chain compared to companies in the discretionary consumer segment. Within banks, the fund house prefers private banks, which have continued to do well. It doesn’t find public sector banks (PSBs) attractive. While they would see increase in funds, PSBs may have to invest in government securities because of limited lending opportunities.
The demonetisation drive is expected to lead to interest rate cuts. “If lending rates are cut sharply, growth will come back. Investors should not get spooked by the noise but take advantage of the current situation,” says Agrawal.