It appears that the days of cash could be numbered in India, which is currently riding the demonetisation wave post the scrapping of old Rs 500 and Rs 1,000 notes on the night of 8 November. Monitoring both legal and illicit economic activities is a challenge for any country. India is a vast informal economy in which nine out of every ten transactions are conducted in cash, allowing buyers and sellers to avoid government scrutiny and income tax. The demonetisation strategy aims not only to flush out cash holders who deprive government coffers, but also to foster legitimate anti-corruption goals. In addition, it could increase domestic access to financial services as a way to boost economic growth and force Indians to use the formal financial system. Currently, only about half of the country’s citizens have bank accounts. There is little doubt that the swap programme will have a major impact on the economy, because as the new notes are distributed, a significant decrease in liquidity is expected. Removing high-denomination banknotes from circulation are being driven primarily by fiscal and monetary policy reasons. Since the 2008 global financial crisis, the world’s Central banks had embarked on a great financial experiment, trying to bolster growth with a mixture of quantitative easing and ultra-low interest rates. Since many of those policy prescriptions have run their course and in the event that the financial system takes another hit, without cash, the possibility of a bank run if interest rates plunge becomes unlikely or even impossible. The recent wave of demonetisation, whether aimed at modernising a financial system or adapting to a new economic reality, will only gain momentum. As India joins the effort to clean the cash out of its system, the rewards of transforming the financial payment and banking system can be significant in the long run and the country will need to fully develop its internal digital infrastructure.Stocks of housing finance companies have performed very well on the Indian bourses in the last couple of years on the back of government’s thrust for the construction and housing sector and the enormous boom in the property market. PNB Housing Finance Ltd is a latest entrant on the stock exchanges and debuted with a 25% premium to its offer price. PNB Hfl reported a rise of 78% in net profit at Rs 137.65 crore for the quarter ended September 2016. The assets under management grew by Rs 34,896 crore, while the loan book stood at Rs 32,236 crore. This is the company’s first balance sheet declared to the stock exchanges after it was listed on NSE and BSE in October 2016. To boost disbursement in the affordable housing loan segment, PNB Hfl has launched Unnati Home Loans during the year to cater to this mass housing segment in Tier 2 and 3 cities. A few foreign brokerages have recently initiated a coverage on the mortgage finance sector companies with a buy call on Pnb Hfl as they estimate a 32% EPS CAGR growth and a loan growth of 41% over the next few years. PNB Hfl, currently quoting at Rs 865, is in a consolidation phase and can appreciate by 25% in the next one year.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.