Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Amid the panic and confusion caused by India's ban on 86 percent of cash in circulation, there's hope that the pain in the stock market won't last beyond a quarter or two, and that everything will be hunky-dory once banks have dispensed enough new notes.

What if that optimism was unfounded?

Macau gambling dens offer the closest template for behavior of asset prices under a strong, centrally directed effort to squeeze out dirty money.

The broader Indian market, which has slid close to 5 percent since Prime Minister Narendra Modi's shock Nov. 8 announcement, is highly unlikely to repeat the two-year, 73 percent slump in the shares of Macau casino operators. But some industries may see a dislocation just as severe as the one unleashed by Chinese President Xi Jinping's anti-graft crackdown:

When Things Go Downhill
Macau casino operators saw a two-year, 73 percent slump; prices are still less than half of their 2014 peak
Source: Bloomberg
*Sands China, Galaxy Entertainment, Melco Crown, Wynn Macau, MGM China, SJM Holdings. **Nov. 28, 2011 = 100; in Hong Kong dollars.

Real estate is exhibit number one. As an industry where the use of untaxed income is rampant, the ban on 500 ($7.30) and 1,000 rupee bank notes has left analysts scrambling to update earnings estimates. Markets have made a swifter assessment: Share prices are down, on average, about 40 percent from their 52-week highs for developers DLF Ltd. and Housing Development & Infrastructure Ltd.

Analysts' one-year targets for these stocks are still pricing in an 83 percent appreciation. Such lofty expectations appear incongruous. With real estate cash transactions drying up, analytics firm PropEquity is predicting a 30 percent drop in home values across 42 cities.

Developers are hoping that primary-market demand -- which is less dependent on cash than secondary deals -- won't be affected as long as the central bank cuts interest rates. That may be wishful thinking. Any reduction in borrowing costs may be swamped by fears of scrutiny of big-ticket purchases, even if paid for by checks.

Those concerns aren't entirely baseless. Media reports suggest that India has decided to tax -- at a rate of 60 percent -- money that has flooded the banking system since Nov. 8 but which the depositors can't justify as income.

Funds are still pouring in. Suppose that by the end of the year they double from the $75 billion already taken in by Indian lenders between Nov. 10 and Nov. 18. That would mean a return to the banking system of $150 billion, or roughly the entire stock of high-denomination cash held by the public before the ban.

To Modi's government, that would signify an embarrassing win for money launderers' shenanigans.  If authorities respond by registering tax claims on a fifth of new deposits -- in proportion to the government's own estimates of the size of the parallel economy -- then up to $30 billion of money coming into banks could be immobilized by disputes. Even if all of it is ill-gotten, the signal such a large expropriation would send to other wealth owners could have a chilling effect on conspicuous consumption as well as purchase of new property.

Any stress to builders' cash flows is bound to hit banks, which were supposed to be the biggest beneficiary of demonetization. But the monetary authority's decision to temporarily confiscate a $47 billion deposit surge into unremunerated cash reserves has dashed hopes that lenders would be allowed to make a killing by accepting troves of cash at 4 percent and lending to the central bank at 6.2 percent.

A Durable Decline
Indian white goods and jewelry makers have seen their shares tumble since the cash ban
Source: Bloomberg

A benchmark index for Indian consumer durable stocks has had a heart attack of sorts since the cash ban. That's largely on expectations of people putting off purchases of refrigerators, watches and jewelry for a while. The taxman's wrath, which would reveal itself only after the deposit surge tapers off, is yet to figure in investors' calculations. And that's where Indian markets' Macau risk might really lie.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at