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Demonetisation deja vu! Should D-St investors be a worried lot?

The reports of cash crunch in various states in the country have revived memories of stock market carnage after Prime Minister Narendra Modi announced demonetisation of higher-end currency notes in November 2016.

However, market experts believe shortage of currency notes will hardly impact the equity market this time around.

Going by the latest reports, a larger number of ATMs went dry for a second consecutive day on Tuesday in many cities. Sudden spurt in cash demand was seen in some parts of the country such as Andhra Pradesh, Karnataka, Telangana, Madhya Pradesh and Bihar.

Principal Economic Adviser Sanjeev Sanyal in an interaction with ETNow on Tuesday said that the government will put more cash in ATMs and banks.

“There is no crisis and will provide as much cash as needed,” he added.

But will stock market feel the pinch of this cash crunch?

“We do not see any impact of this cash crunch on markets,” said Milan Sharma of Rivergate Capital Partners.

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Vijayakumar Chief Investment Strategist, Geojit Financial Services suggested that, “This localised shortage can be addressed quickly by moving cash from places where there is cash more than necessary to meet the demand.”

Last time, the country witnessed a severe cash crunch in late 2016 and early 2017 was when PM Modi on November 8, 2016 had announced to ban Rs 500 and Rs 1,000 currency notes. Immediately after the announcement, the BSE Sensex tanked over 6 per cent in eight trading sessions. The 30-share pack lost 1,826 points to 25,765 on November 21, 2016 from 27,591.14 on November 8, 2016. The index is now hovering around 34,400 levels.

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With a view to meet the currency demand in the country, the government has decided to increase printing of Rs 500 notes by five times, Economic Affairs Secretary Subhash Chandra Garg said on Tuesday.

The government official further added that there is no cash crunch in the country, adding that around Rs 18 lakh crore worth of currency was in circulation — a little over what was in circulation at the time of demonetisation.

Bankers clarified that the situation is temporary. A report by ANI quoting Rajnish Kumar, Chairman, State Bank of India (SBI) on Tuesday assured the people of the country that the situation of cash crunch is ‘temporary’ and that normalcy will be restored within a week.

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Source: Economic Times