Demonetisation in Nigeria impacted India shares market

 On Monday, the shares of Bajaj Auto, an Indian two-wheeler manufacturer, dropped by over 5% after Nigeria's federal government and central bank implemented a note ban. The ban, which was announced in October 2022, took effect on February 10 and severely impacted Nigeria's economy. As of 2:22 pm, Bajaj Auto shares were down 5.14%.

The impact of Nigeria's note ban will have a significant negative effect on Bajaj Auto, as the country represents the largest market for the company in terms of exports. Nearly a quarter of Bajaj Auto's exports are to Nigeria. As a result, Bajaj Auto is expected to reduce production of motorcycles and three-wheelers at its export-oriented factories starting next month, according to The Economic Times.

The newspaper also reported that the demonetisation policy is likely to result in a sharp drop in demand, which has already prompted Bajaj Auto to decrease production at its Waluj and Pant Nagar plants.

According to multiple sources familiar with the matter, Bajaj Auto is expected to produce around 2,50,000-2,70,000 units in March, compared to 3,38,000 units produced in each of the first nine months of FY23. As a result, capacity utilisation at Bajaj Auto's plants, which is pegged at 5,50,000 units per month, could drop by almost 50%.

Rakesh Sharma, Executive Director of Bajaj Auto, confirmed to The Economic Times that the company has substantially reduced its shipments until the situation stabilises. Sharma acknowledged that there is a great deal of uncertainty in Nigeria, both politically and economically, due to the elections and the demonetisation policy.

The note ban in Nigeria is expected to have a negative impact on Bajaj Auto's exports, which have already declined by an average of over 34% year-on-year for the past six months. In January 2023, the company's exports reached a 30-month low of 1,00,679, and the note ban in Nigeria is likely to further reduce the number.

Last year, Nigeria, Africa's most populous country, announced the demonetisation of 200, 500, and 1,000 naira notes and began circulating new ones. The government set a deadline of January 31, 2023, for people to dispose of their old currency notes, but local media reports indicate that the deadline was extended until February 10. The move is aimed at reducing the amount of cash in circulation, controlling inflation, managing liquidity, and promoting a cashless economy.