1 year of demonetisation: Sensex jumps 6000 points in 12 months; is it bad?

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Updated: Nov 08, 2017 11:56 AM

As we look at the stock markets, when demonetisation was announced, the benchmark Sensex was traded around levels of 27,500 which has now zoomed almost 6000 points.

Photo for representational purposes only. (Image: Reuters)

A year ago, on 8 November 2016, Prime Minister Narendra Modi announced a ban on Rs 500 and 1,000 currency notes in a bold move to eliminate black money out of the system. The higher denomination notes of Rs 500 and 1,000 which accounted for about 85% worth of currency in circulation was turned into just a piece of paper overnight. As we look at the stock markets, during the same time a year earlier, the benchmark Sensex was traded around levels of 27,500 which has now zoomed almost 6000 points in a year to a level of around 33,500.

The reason being: more funds available with the banking and financial services sector which they are pumping heavily in the equity markets. Following the demonetisation, the Sensex fell off a little for a couple of weeks from 8 November and marked a 52-week low of 25,717.93 on 21 November. But since then, Indian equities are on a continuous upmove, as is evident from many facts such as record-breaking IPO subscriptions, inflating stock prices despite stagnant earnings.

The year 2017 has emerged as a historic one for the Indian stock markets with the broader Nifty crossing the five-digit mark of 10,000; a number of IPOs being subscribed over 100 times. As about Rs 60,000 crore has been raised through the public offers so far since January 2017, and several others are slated to come up with their public issues.

Fund managers say that the markets are rallying simply because of their being too much liquidity in the system without the underlying fundamental factors to support it. “Equity Mutual Funds are at over 6% cash holding now, which is high. A lot of foreign investors have already exited the market,” Yogesh Nagaonkar, Fund Manager – PMS, Bonanza Portfolio Ltd said to FE Online earlier. “It’s a typical bull market and there is huge liquidity with a lot of money flowing into Mutual Funds,” he said, adding, “Now, when the mutual funds start selling, markets will crash, as there will be no one to buy.”

According to Finance Minister Arun Jaitley, demonetisation was a “watershed moment” that will make India a clean economy.

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