Indian currency withdrawal, Trump win: What it means for rupee, gold, real estate

Indian stocks cut losses and the rupee turned positive on Wednesday as the country’s move to withdraw larger banknotes from circulation was seen as a positive for the economy, ushering transparency and leading to easing inflation.

The recovery offset an initial bout of uncertainty about the banking measures, which had been compounded as Republican candidate Donald Trump shocked investors by winning the US presidential election.

The broader NSE Nifty ended down 1.3 per cent after earlier falling as much as 6.3 per cent, while the rupee strengthened to a one-month high after earlier falls had prompted the central bank to intervene in currency markets. Bonds held on to gains from earlier in the session.

Indian Prime Minister Narendra Modi’s unexpected announcement on Tuesday to remove from circulation 500 and 1,000 rupee notes was seen as likely to hit consumer demand in the short-term.

But any pain will turn to longer-term gains, as it will help usher in transparency, boost taxes and lower inflation, economists said.

Rupee

The domestic currency opened lower at 66.70 as against yesterday's closing level of 66.62 per dollar at the Interbank Foreign Exchange (Forex) market.

Later, it spiralled downward and languished between 66.90 and 66.70 during morning deals, it was still quoting 66.90 at 1045 hrs.

Meanwhile, the dollar Index was dropped by 2.06 per cent at 95.91 against a basket of six currencies in the early trade.

In overseas market, the US dollar sank more than three per cent versus yen and turned tail against other major peers in early Asian trade amid extremely volatile trade in global market.

The move hit consumer demand, as well as sectors long suspected to have been fuelled by illicit funds, such as gold and property, where many transactions are cash-based.

Real estate hit

Real estate shares were among the biggest decliners, reflecting a belief that large amounts of black money are steered towards property transactions. The Nifty Reality index ended down 1.6 per cent, with DLF Ltd, India’s biggest property developer, down 17.3 per cent.

But banking shares recovered from earlier falls with the Nifty Bank sub-index ending flat after earlier falling as much as 7 per cent as coffers are expected to swell when people start tendering their cash.

Sectors with exposure to the US economy were among the biggest decliners due to uncertainty about Trump’s presidency. The Nifty IT index, which exports heavily to the United States, ended down 3.25 per cent.

Investors lose Rs 1.75 lakh cr in market crash

Stock market investors became poorer by Rs 1.75 lakh crore today amid sharp sell-off in key indices after Donald Trump's victory in the US election and the government's decision to withdraw high-value currency notes.

The overall investor wealth measured in terms of valuation of all listed stocks on BSE fell Rs 1,75,192 crore to Rs 1,09,68,808 crore at the end of trade.

During the morning session, the total investor wealth was down by nearly Rs 6 lakh crore.

Market sentiment took a hit also on the government's sudden action to ban Rs 500 and Rs 1,000 currency notes in order to curb black money.

"The double-whammy of US electoral prospects and Prime Minister's demonetisation steps announcement overnight had sunk Indian equities earlier in the day. The disruptive nature of the overnight announcement caught markets by surprise and deflated sentiment which were already on a low following global cues. The clampdown effect was more seen in realty sector where cash is still king," said Anand James, chief market strategist, Geojit BNP Paribas to PTI.

"However, markets soon appreciated the long-term positives of the drive, which was followed by value buying across the board, staging a vertical recovery from the day's lows," he added.

Gold at 3-year high

Gold prices in India today shot up to three-year high of Rs 31,750 per ten gram, gaining a whopping Rs 900, following the government's scrapping high-denomination notes to curb black money and a firming trend overseas in view of Donald Trump's victory in US presidential election.

It was gold's highest closing level of Rs 31,820 after November 19, 2013 in the bullion market here.

India imports huge quantities of gold to meet domestic demand.

Sentiment also got a boost after gold jumped nearly 5 per cent in global market to its strongest in more than five weeks as investors sought safe havens in view of Trump's victory over Democrat Hillary Clinton in the US election.

Gold in Singapore, which normally sets the price trend in the market here, soared as much as 4.8 per cent, the biggest intra-day surge since June to USD 1,337.38 an ounce.

Silver also reclaimed Rs 45,000 per kg mark by registering a steep rise of Rs 1,150, largely in tandem with global trend as money flew to safe-haven investments following melting global equities.

Bullion traders said a significant rise of 3.43 per cent gold prices on the Multi Commodity Exchange further supported the uptrend, indicating more demand for the precious metals in coming sessions.

Some now expect the RBI to make deeper cuts to the repo rate than expected after it lowered it by a quarter percentage point last month.

For the government, increased transparency could yield more revenues. UBS estimated the government could reap an additional $30 billion in taxes, a vital support for a country that has long struggled to contain its fiscal deficits.

The decision is designed to bring billions of dollars in unaccounted wealth into the mainstream economy and to tackle India’s rampant corruption and counterfeit currency problems.

Only around three percent of Indians pay any income tax at all and they face the prospect of serious scrutiny if they cannot account for a sudden increase in their bank balance. 

Religious institutions

Temples and ashrams, where lavish donations can be a front for money-laundering, will be figuring out what to do next, as will those running illegal cricket betting rings and property dealers who often deal in black money.

(WION with agencies)