Fitch re-affirmed its “negative” outlook for India’s banking sector, saying the financial standing remained “fragile” without bigger capital injections and that the government’s action on banknotes could end up having a mixed impact. Fitch Ratings said the government’s move to remove higher-value banknotes from circulation would lead to a surge in deposits, allowing lenders to eventually lower lending rates and lower costs to service the sector’s debt.

But it also noted that the overall impact on the banking sector remained uncertain, given borrowers in sectors that rely on cash could struggle to service their loans, while deposits could eventually be withdrawn again, among other factors.

Given the mixed impact, India’s banking sector could remain constrained by the “undercapitalisation” of state-owned banks and weak investment demand.

The agency, which had previously estimated Indian banks would need about $90 billion in total capital by March 2019 to meet global Basel III banking rules, said 80 percent of those capital requirements would arise in the next two financial years.

The ratings agency expects additions to bad loans to slow, although high loanloss provisions for both new and old non-performing loans would keep profits under pressure.

Meanwhile, HSBC has released a report stating that there will be good things and bad things about PM Modi’s demonetisation scheme, the replacement of the Rs 500 and Rs 1,000 bank notes in an attempt to flush the black money out of the economy. This is not a great surprise–there are good and bad things about any economic action we might take about anything. Here the good things depend upon the future actions that will be taken, the bad on the effect of the shrinking of the money supply the program entails. This will lead, according to HSBC, to a slowing in the GDP growth rate for India by some 1%.

But Ambit Capital, a respected Mumbai-based equity research firm, has officially estimated that the demonetisation-driven cash crunch will result in GDP growth crashing to 0.5% in the second half of financial year 2016-17. This means the GDP growth for six months, from October 2016 to March 2017, could decelerate to 0.5%, down from 6.4% in the previous six months.

Ambit sees a significant deceleration in GDP growth in the second half of the fiscal. It says there is even a possibility of the GDP growth contracting during the December quarter. “We expect GDP growth to decelerate from 6.4% in 1HFY17 (as per Ambit estimates) to 0.5% year-on-year in 2HFY17 with a distinct possibility of GDP growth contracting in 3QFY17,” said the brokerage in a note authored by Ritika Mukherjee, Sumit Shekhar and Prashant Mittal.

“From 3QFY17 until 4QFY19, we expect a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40 per cent share in GDP) become unviable and cede market share to their organised sector counterparts,” it adds.

Ambit has also cut the GDP growth forecast for 2017-18 from 7.3% to 5.8%.

Further, it has scrapped its March 2017 Sensex target of 29,500. The brokerage has set a target of 29,000 for March 2018, implying an upside of 11% for a period of little over 16 months. Ambit says the earnings per share (EPS) of Sensex companies could remain flat in 2016-17 at around Rs 1,390 per share “to reflect the weak GDP growth expected over the next two quarters.”

The Sensex on Friday closed at 26,150.24. The index has given up 1,441 points, or 5.22% since November 8, when the Prime Minister Narendra Modi announced recall of 500 and 1,000 rupee notes to clampdown on black money.

Ambit sees ‘three effects’ triggered by the demonetisation move. The first effect, it believes, “will be the transactional hit created by a hard cash deficit as banks are unable to replace the demonetised cash expeditiously.” This the brokerage says will be temporary but will kill business activity mainly in the second of current fiscal. The second effect it says will have an adverse structural hit on non-tax paying businesses in the informal sector that become unviable and to the real estate sector “where 30-40% of the value of purchases is funded using black money.”

The third positive effect will be a “structural boost to tax-paying businesses in the formal sector which are able to capture the market share vacated by the informal sector.”