Demonetisation – Drop of Sales and Prices across Key Sectors

On 8th November, 86% of all currency in circulation in the Indian Economy was restricted by banning Rs 500 and Rs 1,000 notes.  The various sectors in the economy have been impacted by this sudden decision as it has caused a sharp drop in demand for goods and services. People are prioritizing their purchases and discretionary expenses are being delayed. But its still early days and the actual impact of  demonetisation will be observed only after some time. A month has passed since the decision was implemented and sectors have started to bear the brunt but the hopes for future are bright.

In Real Estate, developers and consultants say that home sales have slowed down significantly as consumers defer home purchases. Land transactions are at a standstill. Prices of land, properties and luxury homes are to drop in the next 3-6 months. Expected rate cuts in the coming months would boost home sales.

In the Banking sector, revenue ­yielding operations such as vending loans and cross ­selling investment products have taken a backseat. But non-interest income have increased and it has also helped banks improve their current account and saving account due to the depositing of cash.

Consumer Packaged Good (CPG) business has been hit the worst kind as the whole business is largely dependent on cash. Rural sales have been hit more with sales dropping about 50%. In the long term, things should bounce back as the economy is re-monetized, and firms lower in the supply chain will too move to non-cash payments.

Consumer Durables, since this sector also thrives on 80-85% of cash the sales has gone low by volumes. New discounts and promotions such as waiver of processing fees and instalment schemes are rolled out to tempt consumers.

Travel has also taken a hit mostly in the unorganized sector where intial bookings aren’t that prevelant. Many travellers are postponing or cancelling their travel, taking a hit on Airline bookings as well.

Automobiles – Post the first month, utility vehicles sales are expected to be down 40-­50%, commercial vehicle sales down by 50­-60% and two­ wheelers by 20-­40%. A recent example, Hero MotoCorp Ltd sold 480,000 units in November, down from a monthly average of 600,000 units. It will take a while for demand to improve, say dealers, but the good part is that enquiry levels have not dropped and that suggests it is a matter of time, may be three months, before the industry gets back on track.

Gold – Facing the sales and prices going down, the jewellers are also worried about tax raids as rumours of black money hoarders using gold to clean up their cash-in-hand in hot everywhere in the country. With the wedding season going on, the jewellers were ready to make a merry by importing and getting stock large amounts of gold. The prices are also expected to drop below Rs 28,000 (per ten grams) post this month.

Organized Retail is a sole clear beneficiary of demonetisation as consumers flock to large stores which accept non-cash payments. They are stocking and purchasing more of daily needs and essentials such as fruits, vegetables and staples such as sugar and flour. Sales are higher by 25% compared to the year-ago period.