Fund managers are struggling to decide whether India's dramatic decision to take 500 and 1,000-rupee notes out of circulation will boost or damage the outlook for Indian investments.
Most observers agree the plan, which affects 86% by value of the cash in circulation, will have a negative short-term impact.
"With cash transactions becoming much harder, businesses will feel the impact of collection issues and working capital problems," said Kannan Venkataramani, senior portfolio manager, Asian equity, NN Investment Partners.
He says farms will be badly hit because much of the agriculture sector relies on cash payments. Many analysts have lowered their estimates for GDP growth in India as a result.
However, Venkataramani and others predict benefits to India including a predicted rise in tax receipts by the government.
"The move is likely to have a transitory impact on GDP growth in the short term but will spell significant structural benefits over the long term," said Sanjay Sachdev, chairman of ZyFin, an Indian asset manager. "The main aim is to deal with black money, corruption and terrorism."
Most fund managers agree that the scale and rapidity of the initiative make it hard to predict the outcome.
"There is an unspoken fear of unrest if things grind to a halt," said Euan Weir, international equities manager at Kames Capital. "However, the consensus seems to be for a one-to-two month liquidity crunch and then a further three to six months for the economy to recover."
©2016 funds global asia