Currency ban to hurt stock markets for at least six months: Christopher Wood

CLSA MD Christopher Wood says real estate sector would be the worst hit by the demonetization; auto, consumer-centric sectors to be impacted as well

Christopher Wood, managing director, CLSA Ltd. Photo: Ramesh Pathania/Mint
Christopher Wood, managing director, CLSA Ltd. Photo: Ramesh Pathania/Mint

Gurgaon: The Indian equity market may witness pain for around six months due to the demonetization move that was announced last week, Christopher Wood, managing director of CLSA Ltd, Asia-based equity broker and investment group focused on institutional broking, said on Monday.

“The question is how long would the pain remain—6 months or 1 year? I am hoping it’s 6 months, but that’s just an initial (estimate),” Wood said in a media briefing.

(Read the full interview with Christopher Wood here)

In a surprise move intended to eliminate black money and the growing menace of counterfeit currency notes, the Union government scrapped currency notes of Rs500 and Rs1,000 denominations on 8 November. 

These high denomination notes account for over 80% of all currency in circulation by value.

“It all depends on how quickly they get the new money in place,” added Wood, adding that if the new money comes in soon, things would not be so bad.

Wood applauded Modi’s move and said it was a bold initiative. “It makes me believe this guy (Modi) is for real,” he said.

He pointed that the real estate sector would be the worst hit, and auto and consumer-centric sectors would be impacted too. The positives from a good monsoon and the implementation of the recommendations of the Seventh Pay Commission would lose their relevance for a consumption boost.

India’s benchmark equity index Sensex was up 2.7% so far this year, while peer China’s Shanghai Composite Index is down 9.4%. Other key emerging market peers Brazil’s Bovespa Index and Russia’s RTS Index are up 36.5% and 28.2%, respectively. Foreign institutional investors (FIIs) have invested a net of $6.4 billion in Indian equities so far this year.

“He is already half way through his term. You can’t make it too late. He wants the economy to recover before elections,” Wood said, when asked if the demonetization move was timed a little early, before financial inclusion could become a more wide phenomenon. 

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