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Effect of Demonetization on Luxury Sector

Sunday November 27, 2016,

3 min Read

On the eve of November 8th, 2016, Hon’ble Prime Minister of India, Mr. Narendra Modi, declare the milestone decision to invalidate the Rs. 1000 and Rs. 500 currency notes. In other words, all the old Rs.1000 and Rs. 500 notes would not be a legal tender. While the world was waiting for the new President of United States of America, Prime Minister of India, took the world by surprise.

As, a result the night of 8th November’2016 saw sharp rise in the gold shopping, lines at the ATMs and Cash Deposit Machines, petrol pumps and grocery and general stores.

This all of a sudden shocker for the country has made major spikes in more or less every sector across industries. It has made almost all small and big marketers to speculate the results of this change. But in all the speculation, no one is sure how the market is going to behave in the long run.

When talking about the Luxury in particular, there was sharp increase in buying of luxury items, specifically the gold jewelry, luxury watches and other items on the eve the demonetization was announced. People rushed to the jewelry shops and bought gold until the late night of 8th Nov. Also, in a similar incident, a Mumbai based retailer for luxury watches sold closed to 50 expensive watches on the same night.

After the announcement, people flocked to the shops to turn their liquid money into solid assets which can be later be sell to convert into liquid money. It worked as a one of the main options for many black money hoarders to secure their money from the effect of demonetization. But this sharp increase in the luxury sector lasted just for a day and next morning saw a sharp fall. As the government took on several stern measures and restrictions on the transactions, the luxury shopping took a halt. Many people who shopped luxury cars recently had received have received the ITR notice to show the proof of income.

It is expected, that there is major slowdown in the luxury buying for the next 3-4 months. But it is expected to start to recover from the fall from the July, 2017. This recover would be seen as a result of, large amount of unaccounted money into the mainstream economy. Thereby decreasing the interest rates on the loan and lowering of the risk in investments. But, to this, real estate will be an exception, as the lot of transactions in this sector was in cash and black money. This will lead to decrease in the more sellers and less buyers in the market, which would eventually decrease the prices in the real state sector, and would take at least 1.5-2 years to recover from this fall.

While speaking for the fashion sector specifically, there will minor setback to it, but is expected to revive itself back from the new spring summer collection 2017. There would be a problem, in the small export houses and vendors where the lot of transaction happens in case. This will continue to happen, until there are enough new currency floating in the market. But this will not be effecting the bigger export houses where the transaction through banks.

Considering all the facts, we can never be sure, how the market will behave in the future. We can all speculate and guess with the best of our judgements to predict the future. Rest we can be spectators to the market behavior and figure out, adjust, and re-strategize for the changes in the market.