What will be the effect of Demonetization of 500 and 1000 INR note on Indian Stock market

What will be the effect of Demonetization of 500 and 1000 INR note on Indian Stock market

Well, who would have thought that demonetization would have impacted the Indian Stock market so much. NIFTY has already fallen by 415 points since the announcement was made by honorable PM of India, on Monday last week. So far, the news is not so good and it looks like the prices are going to go down further.


How is Demonetization going to affect the Indian Stock market?

The 500 INR and 1000 INR old notes have been banned. Plus, there is a shortage of 100 INR notes. Though Government has introduced 2000 INR new notes, but the problem is people do not have any change to give.

There is some limitations on the money you can withdraw in cash which has why people are not spending money in buying items other than foods. Finance Minister Arun Jetley, on Saturday said that it may take 21 days to get things back to normal.

In another statement, Mr. Narendra Modi has requested the Indian citizens to bear with him till December 30. Post Dec 30, things are going to be normal. Considering it will take another 45 days to get things normal, the effect on the businesses is going to be drastic.

Most of the companies may report losses in Q4 2016 results because of the effect of these 50 days. Undoubtedly, the real estate sector has been badly hit. But, it is not only real estate that is suffering the most. Infact, most of the stocks on almost all the sectors have gone down by 10-15 percent in the last one week, except banking.

Which Industries have been badly hit because of Narendra Modi’s Demonetization Rule?

1. Real Estate

Very less number of people is going to invest in Real Estate in this quarter. People who are having cash with them today will need to deposit their amount in their bank account. Most of the transactions in real estate market takes place through cash and since the notes are declared invalid, they will not be able to use the money in real estate sector.

Real Estate Stocks that are badly hit:

  1. DLF Share Price : On 8th November – 143 INR, On 15th November – 114.50 INR – It may further go down to 95 INR
  2. Ashiana Housing : On 8th November – 143 INR, On 15th November – 130.65 INR – It may further go down to 102 INR
  3. Shobha : On 8th November – 266 INR, On 15th November – 237 INR – It may further go down to 214 INR

Well things are not looking good, and it is advised to stay away from Real Estate market for the next 3-4 months.

2. Housing Finances:

Though this sector has very less things to do with black money, still housing finance companies have been badly hit. Chances of people investing in buying or constructing a house/apartment, as a result, have gone down.

Housing Finance Shares that are badly hit:

  1. Can Fin Share Price: On 8th November – 1729 INR, On 15th november – 1259 INR – It may further go down to 1000 INR
  2. HDFL Share Price: On 8th November – 315 INR, On 15th November – 213 INR – It may further go down to 180 INR
  3. Gruh Finance Share Price: On 8th November – 307 INR, On 15th November – 288 INR – It may further go down to 214 INR
  4. PNB Housing Finance Share Price: On 8th November – 850 INR, On 15th November – 809 INR. It may further drop to 750 INR.

3. Paints and Varnishes

The cost of cement has gone a lot higher compared to the price that was there 15 days back. It is quite clear that people will not invest in making houses.

4. Automobiles

Again, very less number of people are going to invest in two and four wheelers in the next couple of months. It looks like this quarter is going to be really dull for Auto industries as well.

Which Sectors are expecting to grow in this Quarter?

Banking. Banks are going to benefit the most from the recent demonetization scheme. As per Ms. Arundharti Roy, the SBI Chief, more than 1 lakh Crore rupees has been deposited in the bank in the last one week. Cash deposits are expected to go increase from next week. Despite bad loans, share price of SBI has gone upto 273 INR from 250 INR.

Even Bank of Baroda is up by 35 INR. On November 8, a BOB share cost was 148 INR which is now 175 INR. It may touch 200 INR very soon.

Export. Invest in the companies that are exporting goods from India. Those companies will be hardly affected by demonetisation of Indian currencies.

Is it the right time to invest in the market?

No. Things are really going to be bad in the next few days, and I don’t see it to get any better anytime soon. If you are really interested in investing, consider banking sector. The best thing to do would be to wait for another 1 month and start putting your money gradually. Sectors you can target is Auto, banking, pharma, IT.

If you have a long time period, which shares should you invest in? When would be the right time to invest?

Well, if you can remain invested for a year or two, this is the best time to invest. Start investing in the stocks that are good but have gone down due to demonetization. For example,  Asian paints. I expect the share price to touch 1200 in the next 4-5 months. Currently it is trading at 892 INR. It may go down below 800 INR but things are expected to change very soon.

There are many good stocks where you can invest your money now. If you are interested to know more, comment below. If I get more than 20 comments, I will write a new post on where you should invest your money today.

Disclosure: I may hold some of the stocks I have mentioned here in this post. However, don’t take is as my personal recommendations. Do your own market research before investing.

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