Financial services cheer India's shock bank note curbs

Unitech

09/11/2016 14:47

* Property among sectors likely to be hit by Indian bank 
note move 
    * Banks, financial services companies seen gaining 
    * PayTM, MobiKwik see surge in demand for online wallet apps 
    * Gold demand may suffer in longer term 
 
    By Devidutta Tripathy and Sankalp Phartiyal 
    MUMBAI, Nov 9 (Reuters) - India's abolition of 500- and 
1,000-rupee notes with virtually no warning caused confusion and 
concern among ordinary people and in sectors of the economy 
where cash is king, but banks and electronic payment services 
are among those licking their lips. 
    Among the biggest losers from the shock move, aimed at 
flushing out money hidden from the tax man in India's huge 
shadow economy, is expected to be property, and the sharp drop 
in the sector's stocks on India's two main exchanges on 
Wednesday reflected that. 
    It was better news for financial services companies involved 
in moving money around the formal economy, however, and among 
them was PayTM, India's top mobile payment wallet services 
provider. 
    It said it saw a 200 percent jump in app downloads and a 
1,000 percent increase in the amount of money added to its 
wallets since Prime Minister Narendra Modi's announcement of the 
curbs late on Tuesday. 
    MobiKwik, which also offers mobile wallet services, said it 
saw a more than 40 percent increase in app downloads. 
    "We'll be a country with a lot more digital transactions and 
payments now," said Vijay Shekhar Sharma, chief executive of 
PayTM, whose biggest shareholder is Alibaba Group  BABA.N . 
    India's shadow, or "black", economy is estimated to be the 
size of about a fifth of its gross domestic product, with 
millions still having no access to formal financial services. 
    Most financial transactions still happen in cash, although 
alternative payments and the use of cards have risen fast in 
recent years. 
    Kotak Securities said it expected a large part of the shadow 
economy to become part of the formal economy, including the 
banking system, over time. 
    Banks will benefit from higher savings deposits, while more 
financial savings also bodes well for insurance, mutual funds 
and wealth management companies, analysts said. 
    Shares in top lender State Bank of India  SBI.NS  rose 2.9 
percent on Wednesday on a Mumbai market  .NSEI  that closed 1.3 
percent lower. The banking sector index  .NSEBANK  edged up 0.1 
percent. 
    Global card network providers Visa and MasterCard welcomed 
the Indian decision, saying it would help cashless transactions. 
PayPal Holdings Inc called it a "master stroke" to make India a 
less cash-reliant economy. 
     
    PAIN FOR PROPERTY, GOLD, FOOD 
    The crackdown on unaccounted wealth will put further 
pressure on the real estate sector, considered a safe haven for 
"black" money and already battling slower home sales. 
    The impact will likely be felt by smaller developers and in 
the secondary sales market, making the real estate sector more 
illiquid for some time, said Anshul Jain, managing director for 
India at consultant Cushman & Wakefield.  
    "Working capital needs for small and medium developers and 
other businesses will be a lot higher," said Jain, adding that 
prices will correct in markets where substantial speculative 
investments have been made using unregistered cash. 
    DLF Ltd  DLF.NS , India's biggest listed property developer, 
slumped more than 17 percent in Mumbai trading on Wednesday, 
while the sector index  .NIFTYREAL  fell 11.6 percent. 
    A DLF spokesman, however, said the bank note move would not 
make "any big difference" for larger real estate companies who 
carried out transactions through banking channels.  
    "It is only a popular perception that real estate spawns 
black money, which is actually not true." 
    The crackdown is also seen as negative for jewellers, as it 
could lower the demand for gold despite a short-term rush for 
the precious metal late on Tuesday, analysts said. 
    "Significant amounts of demand for gold used to get 
generated (by) unaccounted wealth," said Surendra Mehta, 
Secretary at India Bullion and Jewellers Association. 
    "Since such unaccounted money is set to lose value after the 
scrapping of 500 rupee and 1,000 rupee notes, demand for gold 
will also drop." 
    Mehta estimated India's gold demand would fall by 100-150 
tonnes next year from an annual average of about 800 tonnes. 
    The central bank will launch a new series of 500 and 2,000 
rupee notes later this week.  urn:newsml:reuters.com:*:nL4N1D94QI 
    Other sectors that could be impacted in the short term due 
to shifts in demand include consumer goods and automobiles, 
Edelweiss Securities said. 
    Cement makers such as ACC  ACC.NS  and UltraTech  ULTC.NS  
will be hit, as 70 percent of demand comes from housing, HDFC 
Securities analysts said, adding that they expected cement 
companies to cut production. 
    Food chain operators such as those run by Jubilant FoodWorks 
 JUBI.NS , which operates the Domino's Pizza and Dunkin' Donuts 
chains in India, will also be temporarily affected as students 
mostly buy in cash, the brokerage added. 
 
 (Additional reporting by Aditi Shah and Rajendra Jadhav; 
Editing by Euan Rocha and Mike Collett-White) 
 ((devidutta.tripathy@thomsonreuters.com; +91 84518 40430; 
Reuters Messaging: 
devidutta.tripathy.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA MODI/CORRUPTION WINNERS