The markets may be over-estimating the impact of demonetisation, according to Ridham Desai, Managing Director, Morgan Stanley India. Corporate earnings growth in the third quarter will be poor, and there might be some permanent loss of demand, but still, “demonetisation is not that serious an issue. The negative impact is only in the short term and not as bad as people make it out to be,” he said.
Desai was sharing his views on the domestic equity markets with newspersons. He said that the country is seeing the best macro situation in 25 years, with policy uncertainty at its lowest since 2007 and financial condition the best since 2010. “There is room for the RBI to cut interest rates. I expect it to happen in December,” Desai said.
“Corporate balance sheets are also healing. A lot of mergers and acquisitions will happen in the next 12 to 18 months.” Desai forecast that as savings rise, households’ exposure to equities will also climb. He expects them as a category to invest $300 billion over 10 years. Desai counted financials, technology, discretionary consumption and select industrials among his favourite sectors. “Look beyond the next two-three months when picking stocks,” he advised.
Risk factors However, commodity prices going up back up, bond market volatility and a rising fiscal deficit can prove to be risk factors.
Desai predicted that the proposed Goods and Services Tax will be a bigger disrupter than the ongoing demonetisation efforts.