Your browser is out of date. It has known security flaws and may not display all features of this and other websites
We have been made aware that there are external parties falsely claiming to carry out financial services on behalf of Goldman Sachs (including Goldman Sachs Asset Management International and Goldman Sachs International) in order to market fake investment products and to solicit monetary payments. These external parties may pose as Goldman Sachs through the use of fraudulent communications via email, instant messaging or phone, as well as through the use of fake brochures and other documents containing Goldman Sachs branding and logos. The Financial Conduct Authority of UK has issued warnings about these fraudulent activities which can be found here and here. It is important to know that any communication you receive from Goldman Sachs would only come from an @gs.com e-mail address and/or be found on the goldmansachs.com website. Further information regarding how you can protect yourself from fraudulent activity online and how you can contact us about this can be found on the Goldman Sachs Security page, available here.
India Update: Demonetization
What has happened?
In a surprise move, the Indian government de-monetized INR 500 and INR 1,000 currency notes on Nov 8th 2016 in an attempt to reduce corruption and circulation of unaccounted or black money in the system. The two denominations accounted for 86% of all the money in circulation.
Indian equities have sold off 8% since the day of the announcement. Part of the movement can be explained by the negative near-term sentiment following the unexpected outcome of the US elections around emerging markets, which are also down 6%.
The move has been characterized as one of many steps aimed at curbing corruption and the black economy and furthering the government’s related desire of promoting digital banking and financial inclusion.
What does it mean?
We believe the move could have a negative near-term impact on sectors such as high-end discretionary consumption and real estate, where some of this illicit money was perceived to be channeled.
While we anticipate minimal demand destruction among staples, there could be some supply chain disruption, which we expect to dissipate in the coming months.
A short-term liquidity stress is likely to change consumer behavior, pushing them towards non-cash payment solutions such as cards, mobile and internet payments.
We believe the market is fixated on the near term concerns of potential demand destruction and has yet to fully appreciate long-term benefits in the form of a smaller informal economy, a higher tax-to-GDP ratio, lower fiscal deficit, lower inflation and also potentially lower interest rates.
How does it impact our outlook for growth in India?
We remain constructive on the outlook for Indian equities and believe the long-term macro landscape is better now than at any time in the past five years.
This move provides further evidence of the government’s willingness to tackle tough reforms, also seen with the implementation of the standardised Goods and Services Tax bill earlier this year. Strong government execution, a stable current account and fiscal deficit and moderate inflation should all help to support the positive outlook for growth and earnings.
We continue to focus on bottom-up, stock selection based investing and find a considerable number of opportunities, especially in the domestically oriented industrial, consumer, financials and building materials sectors, which should benefit from increased operating leverage as growth continues to pick up.
We continue to look for companies we like on a fundamental basis, where a sharp correction following demonetization and the US elections has provided an attractive entry point.
Given the market is trading at 16.0x NTM P/E1 in line with historical average, we continue to believe it is an attractive entry point into what is the early stages of an earnings growth cycle.