A Study on Impact of Demonetization on Indian Stock Market and Selected Sectors of Indian Economy
Pacific Business Review International Volume 10 Issue 3, September 2017
8 Pages Posted: 2 Feb 2021
Date Written: 2017
While addressing India in his historical speech on 8th November, 2016, prime minister of India, Narendra Modi announced that two highest denomination currency notes in India (500 rupee notes and 1000 rupee notes) will not remain legal tender. Demonetization is one of the most remarkable decisions of Indian government aimed at eradication of black and counterfeit money and control of terror funding. This decision is expected to bring significant change in mode of payment used by Indian people and will transit India towards the cashless economy. Undoubtedly the exact impact of demonetization on Indian economy can be figured out only in long run but in short run demonetization has considerable impact on people, businessmen, small and medium scale industries, companies and economy. This paper examines the impact of demonetization decision on Indian stock exchange as represented by NIFTY index of National Stock Exchange .The paper further examines the impact of demonetization decision on various sectors of Indian economy as represented by various sectoral indices of National Stock Exchange. These sectors include Automobile, Banking, FMCG, Information Technology, Media, Metals, Pharmaceuticals, Real estate, Infrastructure, Private sector banks, Public sector banks, Financial services and Service sector. The result of this study indicated that demonetization has statistically significant impact on all the indices under study. Considering the absolute percentage change in closing price of indices within 30 days of demonetization decision, demonetization has negative impact on all the indices except IT index. Except media index and pharma index the volatility of all other indices under study has increased considerably due to demonetization. Average closing price of NIFTY for 30 days after the demonetization is 5.78% lower than the average closing prices for 30 days before the demonetization. The absolute fall in NIFTY after one month of demonetization is 5.64%. Among the sectoral indices the highest impact of demonetization is on real estate sector followed by media and automobile sector whereas the lowest impact is on metal index followed by PSU banks and IT sector.
Keywords: Demonetization, Black Money, Liquidity Crunch
JEL Classification: G19
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