Effect of US Election and Demonetization on India

Post two major events of US Election and Demonetization (ban of Rs. 500 and 1000 notes) we had a volatile day for Equity markets. After having a big fall markets recovered throughout the day and ending around 1.3% down.

 

We expect the following effects on financial assets:

1. Demonetization will have near term negative effects on sectors such as real estate, infrastructure, auto etc. But the long term effect on Indian economy would be very positive giving a huge boost to EQUITY returns over the period of next 2 to 3 years. The major reason for this boost would be reduction in interest rates thus increasing the profitability of the companies. We also expect FD rates to come below 6% over the period of next 2 to 3 years.

2. Donald Trump is elected as the 45th president of USA. Republicans won all the three elections I.e Presidential, senate and House.
This will lead to faster decision making in US ( similar to the Indian elections after BJP got clear majority). It would be interesting to look out for Trump policies which will decide the direction of markets.

 

To conclude,

1. We feel Demonetization will lead to near term volatility but huge wealth creation from 2 to 3 years horizon.This is a big opportunity to allocate money to Equity as an asset class over the period of next couple of weeks.

2. Interest rates are going to come down sharply. So if anyone looking for fixed income allocation it has to be done this week to maximize the gains.

Credits: Samarth Wealth Management

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