Demonetization - Impact on investments & returns!
With the dust settling down on the demonetization of Rs.500 and Rs.1000 notes (w.e.f 08-Nov-2016), the next question on everyone's mind is, "Does it affect my returns?". This blog explores demonetization's effect for savers who are also largely tax payers. Financial market With over Rs.8.45Trillion deposited into the banks as of 27-Nov, the system is flush with liquidity. A portion of this money is expected to be loaned out for businesses and individuals to start the investment and demand cycle. However in the immediate next 2 quarters, demonetization will keep demand subdued. RBI is currently in a rate cut cycle with further cuts in the offing. This is causing bonds to be the favorite investment pick among analysts (as bond prices rise when rates fall). However, the rate cut cycle is not a given - the quantum of rate cut is primarily dependent on inflation. Although domestic factors impacting inflation are benign with structural changes in supply side and a goo