How the Move Towards a Cashless Economy will Impact Your Stocks

How the Move Towards a Cashless Economy will Impact Your Stocks — As the demonetisation initiative encourages the use of plastic and electronic money, cash transactions will become less and less common.

This, analysts reckon, will have its share of benefits for the economy, apart from boosting tax coffers. The transition to a cashless economy will also improve savings in financial assets which will benefit intermediaries such as banks, NBFCs, microfinance and digital money operators. Here’s a low-down on the impact of demonetisation on the top 10 sectors of the economy, according to ICICI Securities.

AUTO

Demand is likely to dip for a couple of months for two-wheelers, but passenger vehicles and tractors will be less impacted. In the two-wheeler industry, around 35-45% purchases are made via financing, while the rest are though banked cash, or are simply “unaccounted“. But in the passenger vehicles segment, close to 75%-80% of sales are either through financing, or even down payments are made mostly by cheques -so this segment could face less heat. As for tractors, close to 65% of the purchases are financed, therefore the impact of cash squeeze could be minimal.

CEMENT

Companies and dealers are indicating that volumes may get impacted in the near-term as real estate demand (which is 55-60% of overall demand), especially in tier 2 and 3 cities, may get affected in the interim.Demand in tier-1 cities has been weak for the past 2-3 years. But infrastructure demand, backed by government spending which has been driving growth, is unlikely to be impacted.

BUILDING MATERIAL

Building material stocks would come under pressure due to a sudden slowdown. Renovation work, which drives this sector, would get impacted as most of the demand is serviced though cash. Dealer sales in certain projects too would take a hit.

CAPITAL GOODS

The impact won’t be big largely due to the B2B nature of business. However, payment to sub-vendors may face some liquidity issues.

BANKS

The move towards a cashless economy will boost savings in financial assets.

With any sharp infusion of deposits and relatively limited avenues to lend, the credit deposit ratio for banks would become unfavourable, and thus impact margins. In case of a spike in capital adequacy, it would be positive for margins. While in the event of a higher rise in deposits, the immediate avenue to deploy would be G-Secs, and this could create a temporary downward blip in bond yields. Thus some of banks could see windfall gains on treasury.

CONSUMER STAPLES JEWELLERY

The move is good for the organised industry. But in the short term, it may impact the working capital in FMCG distribution. Anecdotally, there’s always a huge panic among distributors -business may be impacted in the short term with liquidity choking up, thereby impacting FMCG revenue growth.There will be a shift from unorganised to organised sector in the jewellery industry.

NBFCs

Asset finance companies may see short to medium term pain as a large chunk of business is cashbased. Housing finance companies to see key impact on loan against property. There may be a slowdown as people may stop buying the second or third house, which may affect developers. Small-finance banks will be big beneficiaries on the deposit front.

TELECOM

There’s no material impact as average transaction size is very small. However, slowdown in smartphone sales could potentially slower adoption of mobile broadband subscriber penetration.

PAINTS

Paint companies which are into big project sales, deal in cash component worth 30-40% of sales, while for shops which have higher retail sales, cash component could be 70-80%.Therefore, paint companies could face fall in sales in the short term.

PHARMA

Demonetisation is not expected to have any major impact on the Indian pharma market and demand is not expected to get impacted in a big way.However, luxury hospitals may see some impact due to spending cuts.

POWER & COAL

A possible fall in the interest rate will be positive for yield players.

Coal prices have risen recently, with China cutting domestic production.With Trump focusing on US competitiveness, there’s a good chance that China will reciprocate allowing coal prices to fall again.