There are approximately US$75 trillion in the world and India represents roughly 2% of this global economy. The problem with the black money is everywhere in the world; but mostly it prevails in the Asian economy. More than 75% of transactions in India are done with cash compare to approximately 20% – 25% in the developed countries.

In our view the world economy is approximately of US$100 trillion and it does have 25% of black money. More than 70% of the black money in world is in the two biggest populated nations of Asia, India and China. Both the nations run parallel non accountable financial institutions that many analysts and economist assume to be as big as its accounted economy (white money).

Please correct if I am wrong, but so far I had heard and read, approximately Rs 16 lac crore were sucked out from the country on 9th of November. This represents around 85% of cash which is in circulation in India as per RBI. This represents approximately quarter of trillion US dollars (US$0.25 trillion) or one part of eight Indian economy.

But as we know, Indian economy is worth around US$2 trillion and many analysts and economists are expecting almost same amount of money or assets are accounted for black money. I do wonder than why did Indian government demonetised currency? This question comes to my mind is because Indian government and bureaucrats do not expect not more than 30% of that cash as black money.

So in simple terms, if there is Rs 100 as black money in India, demonetisation of currency will wipe out only Rs 3.75 from it and will hit 30% of black money transaction. If not most of the corporates transact in cash but their supply chain or their direct dealers transact a good percentage of their business in cash.

So here is the small list of businesses that we think will get affected by this demonetisation of cash negatively.

Amar Raja Batteries AIA Engineering Ajanta Pharma Apollo Tyre Axis Bank
Bajaj Auto Bajaj Finance Berger Paints Castrol India Dabur India
Eicher Motors Emami Eros Media Int Gulf Oil Lubricant Havells India
Hero Motocorp ITC HDFC Bank Jagran Prakashan Jubilant Foodworks
MRF Marico Pidilite Industries Swaraj Engine Zydus wellness

 

The cash crunch what we are facing in India from the past two weeks is just the tip of the ice berg. We are more worried about those 30% black money transactions that will be affected by this demonetisation decision. It will be interesting to see what percentage of those transactions will be converted into white transaction in the future. Also it will be interesting to know whether this whole action of wiping out mere 3.75% of the black money from the economy and the cost to replace them was a rational decision.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.