2 years of DeMon: Look who made and who lost money on Dalal Street
Demonetisation is still a matter of bitter debate between political parties.
Demonetisation is still a matter of bitter debate between political parties. Posting a strong defence of the note ban on its second anniversary on November 8, Union Finance Minister Arun Jaitley said it had a huge impact on formalising the economy.
Extreme fear and panic had gripped Dalal Street after the cash ban announcement and the benchmark Sensex had opened over 1,300 points down on November 9 after Prime Minister Narendra Modi’s announcement on the previous evening, banning all existing Rs 1,000 and Rs 500 denomination bank notes.
The announcement temporarily hit market sentiment and the 30-share pack slipped to 25,765 from 27,591 in eight sessions. Thereafter, it began a rally all the way up to its all-time high mark of 38,989 hit on August 29 this year.
Despite the liquidity crisis post the cash ban and GST implementation the very next year, as many as 228 stocks on BSE doubled investors’ wealth in last two years. Among them, seafood processor Coastal Corporation rose as much as 5,475 percent, graphic electrode maker HEG 2,310 per cent, financial services firm Indiabulls Ventures 1,646 per cent, chemicals firm Kanchi Karpooram 1,348 per cent, graphic electrode maker Graphite India 1,193 per cent, chemicals Mangalam Organics 1,118 per cent, brokerage Dolat Investment 1,106 per cent and insulator technology firm Olectra Greentech 851 per cent.
Among others, Fredun Pharma, Calcom Vision, Maha Rashtra Apex Corporation, Ugro Capital, Generic Engineering, Electosteel Steels, Yuken India and California Software soared between 400 per cent and 600 per cent.
Among the big losers, Sunstar Realty, Shilpi Cable, BCPL International, Kalpa Commercial, TV Vision, Goenka Business, Sri Adhikari Brothers, Meenakshi Enterprises, Diamond Power, Yamini Investment and Videocon Industries dipped between 96 per cent and 99.60 per cent.
Among the sectoral indices on BSE, the Consumer Durables and IT indices gained the most 55 per cent and 46 per cent, respectively since the cash ban. BSE Teck index is up 32 per cent, FMCG 31 per cent, Bankex 30 per cent, capital goods index 27 per cent, metals index 24 per cent, realty 20 per cent and oil & gas 14 per cent.
Auto, Healthcare and Power indices slipped up to 7 per cent during the same period.
Independent market analyst Ambareesh Baliga said demonetisation can be summarised with a Hindi phrase that translates into, “Dug up the mountain but found only a dead rat."
"It was clear that most of the black money was lying in assets such as real estate and gold than in physical cash, as there were enough avenues created for such conversion in the last decade. Overall, the cost of demonetisation for the economy was much higher than the benefits. The government should have done an in-depth research instead of going for a hasty decision. However on the positive side, we have seen faster conversion to online as well as higher compliance - the latter to a large extent can be attributed to GST implementation,” Baliga said.
Marie Diron, Moody's Investors Service in an interaction with ETNow said, “The economy seems to have adjusted to demonetisation. It has taken a few months but the money growth has come back and companies and individuals have adjusted to the new system.”
“As for whether demonetisation achieved its objective of addressing the shadow economy, that is yet to be seen. It will be revealed over a number of years. Also, demonetisation was implemented in conjunction with other measures by the Indian government to try to address that issue and removing cash transactions across the board, for a range of goods and services to that purpose and for targeting benefits more directly. The benefits are yet to be seen and from sovereign credit analysis perspective, if it does achieve its purpose, we would see it reflected in terms of higher revenue collection and that would help reduce deficit for the Indian government,” she added.
Domestic equity indices witnessed a severe correction over the past two month following a spike in crude oil prices, a sharp drop in the rupee, spike in US bond yields, outflow of portfolio money and liquidity crisis in the NBFC. There are expectations that the market is likely to remain volatile ahead of state and general elections in the coming months.
Certainty in business will be the key for the market from here on. Stable sectors will do better or outperform in the market, says Vinod Nair, Head of Research at Geojit Financial Services.
“We also feel export-oriented stocks and sectors will perform well like chemicals and auto. The sectors likely to be under pressure are those which lack financial stability like financials, NBFCs and infrastructure,” he said.
Ajay Jaiswal, President-Strategies and Head of Research, Stewart & Mackertich, said the forthcoming general election is likely to be a make-or-break deal for the market.
“The market may not like a coalition government and FIIs and HNI investors may shun equities unless valuations are very compelling. The fear of policy rollback may haunt market sentiment. We continue to hold our view that the BJP/NDA will return to power in General Elections, 2019. Indian voters have matured over the years and they may not like a change of guard at the Centre as some of the bold measures taken by the BJP government have had mass appeal,” Jaiswal said.