INDIA’S Prime Minister Narendra Modi’s crackdown on black money may have an unintended consequence: a slump in consumer spending that hits India’s corporate earnings recovery. Investors are trying to gauge the impact on company profits after Modi’s surprise recall of high-value currency notes last week. At risk is a strengthening earnings picture that has seen three quarters of gains, after operating profit fell in every quarter of 2015. Finance Minister Arun Jaitley said Nov. 9 the move will dampen consumption in the short term, a belief that’s helped send an index of consumer discretionary goods to a four-month low. “The earnings revival will get delayed as the liquidity crunch will hit consumer-facing industries,” said Nilesh Shah, chief executive officer of Mumbai-based Kotak Mahindra Asset Management Co., which has US$9.5 billion in assets. The measure will “lead to a temporary squeeze in small-ticket consumption and discretionary spending,” he said. Economic expansion of above 7 percent, the US$13 billion salary boost for government staff and a good monsoon after two years of drought had led investors to bet on company profit growth accelerating. Goldman Sachs in October forecast corporate earnings growth in India to outpace its regional peers in the year to March. The sudden decline in money supply has muddied the picture. Modi’s decision to withdraw 500 and 1,000-rupee notes, which accounted for 86 percent of the money in circulation, has virtually stalled the economy. While no one is predicting the anti-graft measures to push Sensex earnings into negative territory just yet, the move will disrupt segments of the economy such as property and gold where cash transactions play a vital role, analysts say. “This move has multiple long-term benefits but in the near term it will lead to material transition-related uncertainty and can potentially disrupt several economic activities that have traditionally relied on unaccounted cash transactions,” Deutsche Bank AG analysts wrote. (SD-Agencies) | 