Demonetization And Its Impact On The Stock Market
Demonetization as we all know is the act of removing a particular unit of currency from its status as legal tender, which means now it holds the value of a piece of paper lying in the dustbin. Like every coin has two sides similarly demonetization has its own pros and cons. Overall, the scales tip in favour of the masses over a long term; however, it may have adverse effect on few segments of the trade in the short run.
Demonetization has led to an artificial shortage of money, which has eventually disturbed the status-quo of the market. Owing to this, a disparity has been created in the demand-supply cycle, the consequences of which may bring down the general price levels of products across the shelf. This can decrease the purchasing power of goods and services which may negatively impact the prices of goods used for long term investment like cars, real estate and other luxury items, which can directly affects the price of core industries like cement, steel etc. So the stock prices of the companies in these sectors may face a nosedive in the short term, whereas the impact on the stock prices of sectors like pharmaceuticals, FMCG might be limited. However, in the long run retail sector, real estate, logistics and transport will do very well as the purchasing power will be restored by that time and they will have a positive impact on the stock market.
Further due to government’s decision of demonetization, the market has witnessed a net sell off by the FIIs, DIIs & HNIs, thereby raising further doubts on the possibility of nifty showing any near term upside trend. While having a more detailed insight we can also make out that after the Presidential election of USA, dollar has become stronger and there is a decrease in the value of Indian Rupee standing at 1$ is equal to Rs. 67.68 having an adverse effect on stock market.
Lastly, As per our technical view if NIFTY breaks below 8050/60 it might head towards the level of 7800.
- Anand Singh Gaur
- Sunil Kothari