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Ever since I sent out the message informing my set of connections about the fate of ₹ 2000 currency notes last evening, I have received about75-80 messages asking various questions about, the What, Why, When, Who and How with regard to his move. While a lot of these questions were answered by the RBI circular itself, like till 30^th Sept 2023, only change of ₹ 20,000 by banks, and any amount can be deposited in the bank subject to other laws of the land. But the most important question that I would like to address is “ How will this impact our Investments in the long and the short Run?”

Looking at the last demonetization of November 2016 we can try and draw some analogies, like when ₹ 500 & ₹ 1000 currency notes were taken out of circulation, it had some impact on the economy. When the cash surplus of the economy came to the banks, it led to fall in interest rates in the economy, which meant lower returns on Fixed deposits but falling interest rates also led to some higher returns on debt funds at the same time. This also led to a fall in inflation which meant that property prices stagnated and came down a bit as an after effect. This also meant that a lot of money which was not in the banking system came back to banks which meant banks had more money to lend so cost of borrowings came down for corporates, which meant higher profits for corporates which in turn meant higher profits and higher share prices. i.e. positive impact on the stock market. The Nifty was about 8400 around demonetization and today it stands tall at 18200 odd. The bank deposit figure which was at approx. ₹ 1 lakh crore in 2016 today is at ₹1.55 lakh crore.  A part of this massive bank deposit increase is getting invested into equities and equity mutual funds as the bank deposit rates have taken a beating. All this happened without any black money getting written off as all the money in circulation came back to RBI.

This is what last leg of demonetization did to the Indian economy, While the new let is not as big a move as last one was but still it will have some part of the impact that the last one left. It will cause a drag on interest rate and inflation, it will cause an uptick in stock markets. The extent of all this will be a little difficult to measure given the present backdrop where we already expect equity markets to do well as the US Fed has stopped rate hikes and we expect it to start cutting rates sometime soon may be starting September or December 2023. This rate cut will lead to high liquidity in US and global markets which will push the markets higher globally with India and Indian markets getting a fair share being the fastest growing global economy.

Coming to what should You as an investor or as a person sitting on the side line do? Well it is time to invest in Indian stock markets, look at Flexicap, large and midcap funds, Multicap funds, funds with a good dividend yield and look at deploying your money in the market over the next 3-6 months.

We strongly believe that markets will give you high single digit or even double digit returns from hereon over the next few years. Yes there will always be unforeseen circumstances that can derail this hypothesis, like war, some other pandemic like situation or something else, but if all other things stat positive or neutral the above scenario is highly likely.

Feel free to connect with us on 9876738803/ 8909900000 or email at Raghupreet@brightwealthideas.com