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Demonetization, GST Disruption Leads to Inactivity of Investments: Neelkanth Mishra, Credit Suisse

There is a lot more discussed these days about the demonetization and GST alike their financial impact on the economy. Neelkanth Mishra of Credit Suisse says, “Since November 8, the performance of Indian equities has been middling among emerging markets, though it should have been among the least affected.”

“The rupee has held its ground, down 3 percent against the USD, better than most other emerging markets. “This suggests demonetization has affected sentiment, though our detailed interactions with more than 50 investors suggest most investors haven’t acted yet,” he added

He also noted that “The FII outflows appear to be more ETF /EM allocation driven thus far. Lack of clarity on the lasting macroeconomic impact of notes cancellation and potential disruption from GST is keeping active investors on the sidelines, Given the many moving parts, the quantification of impact would take a few weeks, if not months.”

On the other platform, Ajay Kapur of Bank of America Merrill Lynch said that “India has shown strong improvement in current account since the ‘taper tantrum’ of 2013 and the currency has been relatively resilient this year.”

“But, the earnings recovery continues to be elusive and valuations at 20.0x trailing P/E and 2.9x trailing P/B remain expensive as compared with other emerging markets, despite being the biggest laggard this year among major emerging markets, investor positioning in India is still high – a contrarian negative.” he added.

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