Demonetization is a biggest reform of the current government which will help to curb black money and corruption in the country. Demonetization will benefit the economy in several ways such as 1) increase in public expenditure and tax benefits 2) lower interest rate due to availability of low cost funds 3) gain in market share of organized segment as tax compliance will diminish low cost advantage of un-organized segment 4) Improvement in transparency, etc. Though there is short term pain, in long term, demonetization offers structural economic benefits.
On this backdrop, we are adding L&T and Powergrid Corporation (government spending and lower interest rates) and Lupin and Alkem (no impact of demonetization). We also retain IT stocks given demonetization does not impact their business and rupee depreciation is likely to be positive for exports.
