The Math of Demonetisation is slowly emerging. Money mostly is finding its way to the bank. The banking system seems to be coming under the scanner for helping cash hoarders launder money. This is something we will hear more about. Consumption is slowing. Indirect Tax collections are likely to follow suit. Service tax will also see some impact. The parallel economy has been stalled. Money changing however seems to continue. But, the cash in people’s hands seems to be extremely tight. Clearly, this means cash meant for circulation among the ordinary citizens has found its way into hoarders’ hands. It is also in the hands of the exchange trade. Naturally this adversely affects normal economic activity. The Government needs to put enough cash to lubricate the economy. This is the immediate priority. What the markets will keenly watch is the Re-onetisation of the economy. This process must be handled much better than the Demonetisation process. If done correctly, it will change the optics and bring confidence back. The Government needs to be fighting bravely to pull things back. Direct tax collections will be another point of focus. While sentiment is driving the present, the future will be driven by hard numbers.
The investor’s tool kit – A cool head, Adequate liquidity and A strong urge to buy good stocks.