NSE, CDSL flag concerns over impact of demonetisation

Two leading stock market entities — NSE and CDSL — have flagged concerns over the move to demonetise high value currencies, saying there is uncertainty about its impact on their businesses. The National Stock Exchange (NSE), which filed its initial papers for IPO today, said there is “uncertainty on the long- term impact” due to the impact of currency demonetisation, even as it noted that the move could lead to attractive growth opportunities for exchanges in the country.

“The short and long-term effects of demonetisation on the Indian economy, India’s capital markets and our business are uncertain and we cannot accurately predict its effect on our business, results of operations, financial condition and prospects,” as per its Draft Red Herring Prospectus (DRHP). Stock exchange BSE-promoted Central Depository Services (India) Ltd (CDSL) has cited uncertainties related to government’s demonetisation move as a risk factor in the draft paper filed for its proposed IPO on Tuesday.

CDSL said the immediate impact of these measures has been a decrease in cash liquidity, which may cause a short term reduction in the purchase and trade in securities by the public. It also noted the long term effects of these measures on the Indian economy, the markets for securities and its operations in particular are currently unclear. 

“... there can be no assurance that this will not have any impact on the Indian economy and investment in the Indian capital markets in general and on our business in particular. “Any slowdown in the Indian economy or reduction in investment in securities in India as a result of this may adversely affect our business, results of operations, financial condition and prospects,” the company said.

According to NSE, demonetisation is a significant step to move India to a less-cash economy in the near term and potentially a cash-less economy in the medium term. “The economy is currently in a period of ‘transition’ and there is uncertainty on the nature and timing of the impact of the policy action.

“Directionally, we can expect that demonetisation may lead to attractive growth opportunities for exchanges in India,” it said. Further, NSE said the move has potential to become an inflection point for banking and capital markets sectors as well as for the economy as a whole.

“We believe that it is too early to define likely scenarios or to estimate quantitative impact of demonetisation on turnover in various asset classes. “As such, this report (finalised before the full impact of demonetisation is clear) does not take into account the opportunities for faster growth of capital markets nor does it factor in potential slowdown in the economy in the near term,” the exchange said.

In an unexpected move by the government aimed at dealing with corruption and black money, Rs 500 and Rs 1,000 notes ceased to be legal tender from November 8 midnight. 

Meanwhile, dismissing fears, the government said that the huge exercise may hit tourism, demonetisation did not have “any adverse impact” on foreign tourist arrivals and foreign exchange earnings as these segments recorded a “robust” growth in November when the drive was launched.

 According to the tourism ministry, foreign footfalls saw a growth of 9.3 per cent at 8.91 lakh in November compared to 8.16 lakh in the month last year. The foreign exchange earnings registered a growth of 14.4 per cent at Rs 14,474 crore compared to Rs 11,431 crore in the same period in 2015.

“It can thus be observed that demonetisation did not have any adverse impact on the foreign tourist arrival and foreign exchange earnings which have shown robust growth over the comparative period last year,” it said in a statement.

The government has taken steps to ensure “no hardship is faced” by tourists and the industry is not affected due to demonetisation, the ministry said, claiming that “government efforts have paid dividends” with growth in the figures.

In fact, the number of e-tickets sold during the 30 days after the move to demonetise currency notes of Rs 500 and Rs 1,000 was announcement on November 8 increased to 28,176 compared to 2,807 during the 30 days prior to the televised decision, witnessing earnings of Rs 181.49 lakh and Rs 3.10 lakh in the comparative period, the ministry said.