Scrapping 500/1000 is good for Gold
India’s GDP is 2 Trillion USD
Black economy is 1 Trillion USD
People earn 1 Trillion USD every year without declaring to Govt.
Total currency in circulation in India is 17 Lac Crores INR or 260 Billion$, i.e. 25% of one year’s worth of black money. Or 3 months of black money.
So, taking money out of circulation is hitting black economy by 3 months of its income.
When demonetization was executed in January 1946, and yet again in 1978 by Janata Party, this generation of 2016 forgot about it. But, since its fresh, current generation of black money hoarders will not keep more in INR notes than they can afford to lose.
Suitcases of Gold nuggets will be exchanged, sometime USD / GBP bills for large deals now. Hence good for gold.
Its hard to change habits, and to get people to comply to pay tax. So, expect things back to BAU and normal in six months.
Beneficiaries will be Gold companies, Real Estate, Organised Sector, E-Wallet, Debit/Credit Card issuers.
Primary loser will end up being un-organised sector. Don’t expect income equality anytime soon until minimum wage bill is proposed.
Hope you make money in this volatility. Previous hit on 1946 and 1978 did not make a big impact in tax compliance of black economy. One time re-distribution of wealth from industrialists to village via village heads or directly via bank accounts to channel black conversion to white does provide one time benefit to lower income class.
Unlike to be meaningful impact other than 100 Billion hit, i.e. 10% of annual income of black economy. Black money hoarders will say to Modi, once you fool me shame on you, twice, shame on me.
Good news for stock market in the long run, being an organised sector.