A Study On Pre And Post Demonetisation Impacts On Selected Sectors (With Reference To Indian Stock Market)
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INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 9, ISSUE 03, MARCH 2020 ISSN 2277-8616
A Study On Pre And Post Demonetisation Impacts
On Selected Sectors (With Reference To Indian
Stock Market)
P. Kamalakannan, S.Sathyakala
ABSTRACT: The demonetisation of banknotes was a policy passed by the Government of India on 8 November 2016 that had a
big impact on Indian stock markets. A lot of investors were withdrawing capital from stocks. Some because they were out of
funds while others expect a crash, perhaps an opportunity to buy at lower levels. A reliable criterion to gauge the immediate
economic impact of a sudden policy shock is to observe stock market trends and for this Analytical study is used to conduct the
study. The present study focuses on the analysis of pre and post demonetisation impact on share price movements of major
sectoral indices at NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) that includes automobile, consumption,
realty, banking and other sectors with the help of various technical and statistical tools. Also the demonetisation impact on flows
of Foreign Institutional Investors (FII) & Domestic Institutional Investors (DII) trading activities on Indian Stock Market is also
studied. The results of the study reveal that automobile and the real estate (housing) sales were most affected by demonetisation
in the short term but gains momentum in the long run. The sectoral indices showed a short term negative impact which will revive
to positive growth in long run. Metal, Infrastructure, Oil & gas, banking sectors were benefited from demonetisation and hence
investors can make their investments in these sectors and can construct a better portfolio.
Key words: Demonetisation, Nifty, Sensex, Realty (Real Estate), Automobile (Auto), Bullish, Bearish, Foreign Institutional
Investors (FII) & Domestic Institutional Investors (DII).
INTRODUCTION GL Kaminsky and SL Schmukler (1999) - In their study
A Bold announcement about Demonetisation announced they have found that, in the chaotic financial environment
on Nov 8, 2016, as a measure to curb fake currency for of Asia in 1997–1998, daily changes in stock prices of
funding terrorism and to eliminate black money inside the about 10 percent became commonplace. This paper also
country. The Demonetisation move announced by analyses what type of news moved the markets in those
government claimed as a measure to stop faking of the days of market jitters. They found that movements were
current banknotes apparently used for funding terrorism, triggered by local and neighboring-country news, with news
as well as a crackdown on black money in the country. This about agreements with international organizations and
credit rating agencies having the most weight. However,
event has led to heightened market volatility. The
certain major changes cannot be explained by any
Purchasing power of goods and services decreased due to
obvious significant news, but seem to be enforced by
the demonetisation, eventually had an adverse impact on mob instincts of the market itself. The proof suggests
the prices of goods like cars, gold, real estate and selected that investors react emotionally to corrupt news.
luxury items. The cascading impact is on the prices of core
industries like steel, cement etc., Further due to the R. Chakrabarti (2001), concluded in his study that in the
government’s decision of demonetisation, the market has pre-Asian crisis period any change in FII was found to have
witnessed a net sell off by FIIs (Foreign Institutional a positive impact on the equity returns, whereas in the post-
Investors), DIIs (Domestic Institutional Investors) and HNIs Asian crisis the reverse relationship was noticed. FII’s were
(High Networth Individuals). The impact of Demonetisation a major portion of investments and their roles in
in the country and presidential elections at US, the indices determining the movement of share price and indices is
such as S&P BSE Sensex and Nifty 50 declined to six-month considerably high. The movement of indices in India
low in the following week after the announcement. depends only on the trade done in limited number of stocks.
Thus, volatility of the market is influenced by frequent
REVIEW OF LITERATURE buying and selling of stocks by FII’s.
Stephan H Penman (1989) in his study explained that
Technical analysis includes a variety of forecasting Anil. K. Sharma and Neha Seth (2011) in their paper they
techniques such as chart analysis, pattern recognition studied the impact of recent financial crisis on stock market
analysis, seasonality and cycle analysis, and computerized efficiency in emerging stock markets such as India. The
technical trading systems. Several popular technical trading data for past 10 years were collected from BSE (Bombay
systems are moving averages, channels and momentum Stock Exchange) and NSE (National Stock Exchange) in
oscillators like RSI (Relative Strength Index). India. The data was divided into two sub-periods, i.e. before
financial crisis (period I) and after financial crisis (period
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II). The study concludes that Indian Stock markets do not To ascertain the pre and post demonetisation
exhibit weak form of market efficiency and thus do not influence on selected sectors (Nifty Realty &
follow random walk in both period I & II. The study Nifty Auto indices) with effect to Indian Stock
implies that the recent financial crisis did not impact the market.
behavior of Indian Stock markets to a great extent
P. Mukherjee and M. Roy (2011), identified LIMITATIONS
various determinants of FII like (1) Investment in Indian Since demonetisation policy is been the recent
markets by foreign investors are based on the equity market enactment by the Government of India, it takes
returns; (2) FII Flows is influenced by the returns in the time to stabilize itself in the economy.
Domestic equity market; (3) whereas FII sale and FII net The study is limited to selected sectors under NSE
inflow are significantly affected by the performance of the (National Stock Exchange) and BSE (Bombay
Domestic equity market, but Purchases made during this Stock Exchange).
period by FII’s shows no such impact to this market
performance; (4) Investment in Indian Equity market is not RESEARCH METHODOLOGY
used for diversification purpose by the FII investors; (5) FII Analytical Design is used to conduct the study.
decisions are impacted by the fundamentals of the economy The data collection is purely based on secondary data,
and exchange rate returns, but such influence do not prove collected from Industry and stock websites, financial
to be strong enough. reports, press releases from the Financial Analysts, books,
magazines, journals and papers on stock price movements.
IMPORTANCE OF THE STUDY Statistical tools such as Standard deviation, Covariance,
As Indians fight to cope up with the second Correlation and Regression analysis are used in the study.
demonetisation since 1947 (previously in 1978, Rs.1000, Adding to it, financial tools of Technical analysis such as
Rs.5000 and Rs.10000 notes were restricted), the scale and Line charts, Bar charts and RSI (Relative Strength Index)
scope of this action is significantly bigger. Impact of charts are used in the study. The study was conducted
demonetisation can be gauged by observing the trends and during the period of October 2014 to July 2018 where, Pre
volatility in the stock market during the policy period. Demonetisation period is calculated from October 2014 to
Stock market indices have a deep reflection on changes in November 8, 2016 and Post Demonetisation period is
the economy activity. Therefore, the present study is an calculated from November 9, 2016 to July 2018.
attempt to analyze the movement of stocks of selected
sectors with the help of financial, technical and statistical RATIONALE FOR SELECTING THE SECTOR OR
tools through which investors can make wise investments INDEX FOR ANALYSIS
and also to create a better portfolio. Nifty 50 is the major stock index in India introduced
by the National Stock Exchange (NSE). It is broader
SCOPE OF THE STUDY than the Sensex in terms of volume transactions and
Amidst adverse effects of demonetisation in short bench marking, so Nifty 50 index is chosen for the
term, the scales tip in favor of the masses over a long term. study.
The study focuses on the analysis of share price movements The Nifty 50 index is composed of firms from a varied
of major sectoral indices at BSE & NSE and these include set of industries. Under Nifty 50 Sectoral indices, Nifty
automobile, realty, consumption, banking, metal, and Realty and Nifty Auto indices are taken for analysis in
infrastructure sectors. Out of which, the most affected the study as these were most affected sectors in Indian
sectors such as Automobile (Auto) and Real Estate (Realty) Stock market.
sectors are analyzed and discussed deeply to study the pre Since the FII/FPI (Foreign Portfolio Investors) and DII
and post demonetisation impacts. (Domestic Institutional Investors) contribute much to
OBJECTIVES the Indian stock market, their trading activities are also
To analyze the performance of sectoral indices of analyzed with regard to demonetisation policy.
NSE and BSE on pre and post demonetisation
move.
To analyze the pre and post demonetisation
impacts on capital market segment to the flow of
FII’s (Foreign Institutional Investors) vs DII’s
(Domestic Institutional Investors) trading activity
in Indian Stock market.
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ANALYSIS & DISCUSSION
PRE AND POST DEMONETISATION IMPACTS ON INDIAN STOCK MARKET
Exhibit 1: S&P BSE Sensex and Nifty 50 trend chart on Pre Demonetisation move (October 2014 to November 8, 2016) and on
Post Demonetisation move (November 9, 2016 to July 2018)
TREND CHART OF BSE SENSEX & TREND CHART OF BSE SENSEX
NIFTY 50 INDICES & NIFTY 50 INDICES
(Pre Demonetisation) (Post Demonetisation)
35000 40000
30000 35000
30000
25000
25000
20000
20000
15000 15000
10000 10000
5000 5000
0 0
9-Nov-17
9-Nov-16
9-Mar-17
9-May-17
9-Mar-18
9-May-18
9-Jan-17
9-Sep-17
9-Jan-18
9-Jul-17
9-Jul-18
1-Apr-15
1-Jun-15
1-Apr-16
1-Jun-16
1-Dec-14
1-Feb-15
1-Aug-15
1-Dec-15
1-Feb-16
1-Aug-16
1-Oct-14
1-Oct-15
1-Oct-16
Sensex close price Nifty close price Sensex close price Nifty close price
Source: Secondary data
From the above graph, it is clear that, in pre-demonetisation period, BSE SENSEX had a sharp fall to 23000 on
February 2016 and then experienced a bullish trend to 27500 on November 8, 2016 that had gained a positive
momentum in the Indian Stock market.
In post-demonetisation period, on Nov 9, 2016, BSE SENSEX smashed almost 1,689 points and NIFTY 50 rushed over
541 points. By the end of the intraday trading section on 15 November 2016, the BSE SENSEX index was lower by 565
points and the NIFTY 50 index was below 8100 intraday. On November 16, a week after, the daily closing price of NSE
S&P CNX Nifty 50 index came down by 5.1% as compared to November 8, which is shown in the above graph. This
plunge made it the lowest weekly closing value since February 2016. As of now, both SENSEX and NIFTY 50 indices
are experiencing bullish trend and reached 37500 and 11320 points respectively
SECTORAL IMPACT ON DEMONETISATION
Exhibit 2: Sectoral performance for the year 2016
Sectoral performance for the year 2016
30000 50.00%
CLOSE PRICE
RETURNS %
25000 40.00%
20000 30.00%
15000 20.00%
10.00%
10000 0.00%
5000 -10.00%
0 -20.00%
SECTOR
1-Jan-16 1-Dec-16 Returns %
Source: Secondary data
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From the above chart, it is clear that, to the sectoral performance for the year 2016, the Nifty Metal Index was up by
40% for the year and it is said to be the cash king, followed by the Oil & gas, which gained 23%, while Banking and Auto Indices
trailed with 7% and 5% rise respectively. The IT Index was the most affected sector for the year 2016, which is down over by
10%, followed by Pharma index, which plunged a little over 8%, while Realty index and Consumer Durables indices slipped 8%
each respectively.
1.1 SECTORAL INDICES PERFORMANCE: NSE (NATIONAL STOCK EXCHANGE)
The means of the closing value of the sectoral indices at NSE is compared for a period of 25 trading days before
demonetisation (October 3 to November 8, 2016) with a period of 11 trading days after demonetisation (November 9 to
November 24, 2016) to understand the volatility due to policy change. The following graph shows the impact.
Exhibit 3: Mean Sectoral Returns of NSE (National Stock Exchange) on pre and post Demonetisation move
MEAN SECTORAL RETURNS ON PRE AND POST DEMONETISATION
-0.1 Nifty PSE Index 0.14
-0.14 Nifty Metal 0.2
-0.5 Nifty Bank -0.01
-0.73 Nifty Private Bank 0.01
-1.01 Nifty Realty -0.2
-0.93 Nifty India Consumption -0.1
-0.82 Nifty FMCG 0.03
-1.2 Nifty Auto -0.08
-1.4 -1.2 -1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4
Post-Demonetisation returns (%) Pre-Demonetisation returns (%)
Source: Secondary data
From the above graph, it is clear that, in pre-demonetisation period, the Realty, Consumption and the PSE (Private Sector
Enterprise) indices experienced very low returns by -0.2% and -0.1% each respectively, while Metal and FMCG sector
indices experienced a relative high returns by 0.2% and 0.03% respectively.
In post-demonetisation period, the automobile sector (Nifty Auto) has recorded the highest plunge of -1.2% followed by
Nifty Realty of -1.01% in the mean returns, and Nifty PSE (Private Sector Enterprise) Index experienced the highest surge of
0.14%.
1.2 SECTORAL INDICES PERFORMANCE: BSE (BOMBAY STOCK EXCHANGE)
The performance of the sectoral indices under BSE are calculated on the mean returns of market capitalization from
November 8, 2016 to December 23, 2016 for the post demonetisation period.
Exhibit 4: Post Demonetisation Sectoral returns percentage - BSE
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Post Demonetisation Sectoral returns (%) - BSE
Realty -27.63
Consumer Durables -18.42
Auto -12.44
Capital goods -11.91
-9.77
FMCG
Manufacturing -8.99
Finance -8.33
Bankex -7.58
Consumer Discretionary -5.77
Metal -5.41
Sensex -4.87
Telecom -4.11
Energy 0.17
Utilities 0.75
Oil & Gas 1.64
Healthcare 2.09
IT 2.25
Infrastructure 5.49
-30 -25 -20 -15 -10 -5 0 5 10
Post Demonetisation returns (%)
Source: Secondary data
From the above graph, it is clear that, most affected sectors trading data across NSE(National Stock Exchange),
by post demonetisation are Realty, Consumer Durables, BSE (Bombay Stock Exchange) and MSEI
Auto, Capital goods, FMCG (Fast Moving Consumer (Metropolitan Stock Exchange of India limited)
Goods), Manufacturing etc. Whereas, the most benefited collated on the basis of trades executed by FIIs/FPIs
sectors in post demonetisation are Infrastructure, IT, (Foreign Portfolio Investors)
Healthcare, Oil & Gas etc. The trading data below of DII’s (Domestic Institutional
Investors) indicates the trades executed by Mutual
2) TRADING ACTIVITIES ON CAPITAL MARKET Funds, New Pension System, Banks, Insurance, DFIs
SEGMENT and Insurance across NSE, MSEI and BSE
The following is a combined FII/FPI(Foreign
Institutional Investors/Foreign Portfolio Investors)
Table no: 1 FII vs DII TRADING ACTIVITIES (From October 2014 to July 2018)
FII (Rs. in Crores) DII (Rs. in Crores)
Net Purchases/ Gross Net Purchase/
Date Gross Purchase Gross Sales Gross Sales
Sales Purchase Sales
Pre-Demonetisation period
Oct-14 68678.08 70360.95 -1682.87 30691.34 26588.47 4102.87
Nov-14 92237.70 81292 10945.59 28664.95 35936.29 -7271.34
Dec-14 76004.51 79941.33 -3936.82 37301.10 31345.31 5995.79
Jan-15 97928.91 89388.15 8504.76 33785.16 40316.91 -6531.75
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Feb-15 98624.75 91878.55 6746.20 38472.96 36761.08 1711.88
Mar-15 113231.70 106651.03 6580.67 41189.93 40995.17 194.76
Apr-15 112729.67 104865.31 7864.36 42708.08 31196.62 11511.46
May-15 115328.54 120124.79 -4796.25 42361.08 33778.82 8582.26
Jun-15 88687.39 96880.31 -8192.92 41851.78 29825.23 12026.55
Jul-15 87724.15 85426.10 2298.05 35163.76 35091.45 72.31
Aug-15 95879.11 115651.18 -19772.07 48145.48 31707.95 16437.53
Sep-15 81805.27 93084.59 -11279.32 39091.63 28818.57 10273.06
Oct-15 77250.13 74223.47 3026.66 32159.62 33678.48 -1518.86
Nov-15 75013.31 84043.12 -9029.81 33828.14 25328.16 8499.98
Dec-15 69530.14 71890.16 -2360.02 37088.08 30760.44 6327.64
Jan-16 71491.92 85847.93 -14356.01 43075.94 30201.04 12874.90
Feb-16 74262.92 86776.04 -12513.12 40129.01 29637.40 10491.61
Mar-16 108002.95 83801.44 24201.51 31576.15 48468.05 -16891.90
Apr-16 69963.65 67027.37 2936.28 24467.25 27021.61 -2554.36
May-16 97116.20 97077.81 38.39 38877.32 32119.24 6758.08
Jun-16 89373.04 85415.09 3957.95 35927.95 38101.50 -2173.55
Jul-16 91989.79 81867.10 10122.69 38640.08 44694.68 -6054.60
Aug-16 110195.16 101416.89 8778.27 45174.03 49580.34 -4406.31
Sep-16 101165.89 97836.27 3329.62 51440.20 49440.98 1999.22
Oct-16 72661.20 78431.39 -5770.19 45294.51 37388.16 7906.35
Post Demonetisation period
Nov-16 110863.20 130845.57 -19982.37 66379.78 48102.75 18277.03
Dec-16 74545.48 85870.76 -11325.28 42473.11 33337.02 9136.09
Jan-17 76909.72 78811.04 -1901.32 50855.74 46351.80 4503.94
Feb-17 107722.25 99017.79 8704.46 61116.21 60180.95 935.26
Mar-17 153101.24 126628.07 26473.17 65535.41 69931.02 -4395.61
Apr-17 81594.59 88222.15 -6627.56 60188.82 50941.39 9247.43
May-17 123004.66 123457.20 -452.54 69117.29 64840.23 4277.06
Jun-17 99619.25 103670.68 -4051.43 60330.87 53654.76 6676.11
Jul-17 104497.69 103032.84 1464.85 67911.76 63125.39 4786.37
Aug-17 95588.51 111584.14 -15995.63 70219.04 54013.82 16205.22
Sep-17 95431.19 119401.16 -23969.97 79160.50 58134.97 21025.53
Oct-17 103827.67 111654.20 -7826.53 74713.94 64623.03 10090.91
Nov-17 132245.68 145760.46 -13514.78 89605.94 80362.73 9243.21
Dec-17 96087.52 102499.09 -6411.57 76814.06 68671.18 8142.88
Jan-18 134222.01 124654.01 9568.00 93029.54 92630.81 398.73
Feb-18 101881.52 120500.67 -18619.15 82216.56 64403.55 17813.01
Mar-18 118876.79 110971.94 7904.85 79303.18 72609.27 6693.91
Apr-18 92062.09 101682.65 -9620.56 70705.51 62041.63 8663.88
May-18 120914.92 133274.63 -12359.71 87103.11 72048.63 15054.48
Jun-18 109343.10 119592.27 -10249.17 78930.30 64784.15 14146.15
Jul-18 97483.65 100252.40 -2768.75 74731.75 70885.88 3845.87
Source: Secondary data.
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From the above table, it is clear that, positive figure demonetisation move. Now the DII’s net purchases is
indicates net purchases and negative figure indicates net experiencing a bullish trend and gaining a positive
sales. steady growth in the Indian Stock Market. Hence, both
In pre-demonetisation period (Oct 2014 to Nov FII & DII’s trading activities balanced themselves in
8,2016), the FII’s net purchases recorded maximum on the either ways.
Nov 2014 by Rs.10945 crores & July 2016 by
Rs.10122 crores, whereas DII’s recorded maximum net
purchases on Aug 2015 by Rs.16438 crores 3) PRE AND POST DEMONETISATION IMPACTS
In post-demonetisation period (Nov 2016 to July ON SECTORIAL INDICES OF NSE (National
2018), the FII’s net sales was maximum in November Stock Exchange) IN TERMS OF SHARE PRICE
2016 but it was almost equal to DII’s net purchases, 3.1 PRE AND POST DEMONETISATION
and DII’s net purchases was recorded maximum in IMPACTS ON NIFTY REALTY INDEX
November 2016 which was due to fall in the prices of Exhibit 5: Trend chart of Nifty Realty index on Pre and
almost all the stocks listed in the stock exchanges on Post Demonetisation period in terms of share value
TREND CHART - NIFTY REALTY TREND CHART - NIFTY REALTY
INDEX INDEX
Pre Demonetisation Post Demonetisation
300 400
250 350
300
200
250
150 200
150
100
100
50
50
0 0
09-Nov-16
09-May-17
09-Nov-17
09-May-18
09-Jan-17
09-Mar-17
09-Jul-17
09-Sep-17
09-Jan-18
09-Mar-18
09-Jul-18
01-Apr-16
01-Jun-15
01-Jun-16
01-Apr-15
01-Dec-14
01-Feb-15
01-Aug-15
01-Dec-15
01-Feb-16
01-Aug-16
01-Oct-14
01-Oct-15
01-Oct-16
Nifty Realty Close price Nifty Realty Close price
Source: Secondary data
From the above chart, in Pre-demonetisation period (October 2014 to November 8, 2016), the stock experienced a
bearish (downward) trend in first half of the study to 128 points on Feb 2016. In the last half of the study, the stock
experienced bullish (upward) trend of 205 points on Oct 2016.
In Post demonetisation period (From November 9, 2016 to July 2018), Nifty Realty Index shows a bullish trend and
reached its peak by 360 points on Jan 2018. Now the Index is experiencing bearish trend, fallen to 264 points in July
2018.
Exhibit 6: RSI (Relative Strength Index) chart of Nifty Realty index on Pre and Post Demonetisation period in terms of share
value.
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RSI CHART - NIFTY REALTY INDEX RSI CHART - NIFTY REALTY INDEX
(Pre Demonetisation) (Post Demonetisation)
100
100
90
90
80
80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
09-May-17
09-May-18
09-Nov-16
09-Sep-17
09-Nov-17
09-Jan-17
09-Mar-17
09-Jan-18
09-Mar-18
09-Jul-17
09-Jul-18
01-Apr-15
01-Jun-15
01-Apr-16
01-Jun-16
01-Dec-14
01-Aug-15
01-Dec-15
01-Aug-16
01-Oct-16
01-Oct-14
01-Feb-15
01-Oct-15
01-Feb-16
RSI RSI
Source: Secondary data
From the above chart, in Pre-demonetisation period, the level of RSI for Nifty Realty is said to be between 30-60 where
maximum of the investors were holding their securities, i.e. neither bought nor sold.
In Post Demonetisation period, initially the level of RSI was maximum between 50-80 indicating the bullish trend of the
stock i.e. overbought, which is a good signal to the investors for investments. In February 2018, the RSI has fallen to 20
that indicates oversold. Now the RSI is between 30-50 where majority of the investors are holding their securities, i.e.
neither bought nor sold.
STATISTICAL ANALYSIS
Table no: 2 Statistical analysis on the basis of stock returns of Nifty Realty Index on pre and post demonetisation period.
Pre Demonetisation period Post Demonetisation period
Statistical tools
Nifty 50 (%) Nifty Realty (%) Nifty 50 (%) Nifty Realty (%)
Average returns 0.02 0.02 0.07 0.12
Variance 0.01 0.04 0.004 0.027
Standard deviation 0.97 2.03 0.66 1.66
Correlation 0.3297 0.6015
Covariance 0.001 0.0003
From the above table it is clear that,
Both Nifty 50 and Nifty realty indices found a rise in result of the correlation analysis i.e. the highest
their returns in post demonetisation when compared to correlation coefficient is 0.6015 on post
pre demonetisation. Variance of the returns of indices demonetisation period indicating strong positive
reduced in post demonetisation period i.e. spread of the relationship (positive correlation) exists between the
returns is less. The Standard deviation is minimized returns for Nifty 50 and Nifty Realty indices. Hence
from its mean during post demonetisation period. Nifty 50 and Nifty Realty indices move in same
The covariance and correlation analysis is calculated direction which indicates to the investors to go
between the mean returns of Nifty 50 and Nifty Realty confidently in developing a better (diversified)
Indices for the period October 2014 to July 2018. The portfolio with Nifty 50 and Nifty Realty indices.
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REGRESSION ANALYSIS
Exhibit 7: Regression Analysis between returns of Nifty 50 & Nifty Realty on Pre and Post demonetisation period
NIFTY 50 - NIFTY REALTY (Pre NIFTY 50 - NIFTY REALTY (Post
Demonetisation) Demonetisation)
10.00%
10.00%
y = 1.518x + 8E-05
8.00%
R² = 0.3619
5.00% 6.00%
NIFTY 50 4.00%
0.00%
2.00%
-8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00%
NIFTY 50
0.00%
-5.00% -4.00% -2.00% 0.00% 2.00% 4.00%
-2.00%
NIFTY REALTY
NIFTY REALTY
-4.00%
y = 0.0694x + 0.0002 -10.00%
R² = 0.0011
-6.00%
-15.00% -8.00%
Source: Secondary data
Table no 3: Showing the summary output for the regression analysis between Nifty 50 & Nifty
Realty indices on pre and post demonetisation period
Regression Statistics (Nifty 50 – Nifty Realty)
Statistics Pre Demonetisation Post Demonetisation
Multiple R 0.0331 0.6014
0.0011 0.3619
R Square
Adjusted R Square -0.0008 0.3602
0.0203 0.0132
Standard Error
Observations 514 429
Note: The regression analysis is calculated on the mean returns of Nifty 50 and Nifty Realty indices for the period October 2014
to July 2018.
Nifty 50 index returns (Independent variable) is plotted In pre demonetisation period, in the regression
along x-axis and Nifty Realty index returns (Dependent equation, for every 1% increase in Nifty 50 index
variable) is plotted along y-axis. The regression line shows returns (X), there is a 0.07% of increase in Nifty Realty
how Nifty Realty index returns varies with Nifty 50 index index returns. R square is 0.0011 on the variation in
returnsFrom the above table and graph, it is clear that, the Nifty realty (Y) is explained by Nifty 50 regression
regression line is sloping upwards that tells us that as Nifty line.
50 index returns increase along the x-axis, the Nifty Realty In post demonetisation period, in the regression
index returns also tend to increase along the y-axis. equation, for every 1% increase in Nifty 50 index
returns (X), there is a 1.52% of increase in Nifty Realty
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index returns. R square is 0.3619 on the variation in line. Hence there is a significant impact of Nifty 50 on
Nifty realty (Y) is explained by Nifty 50 regression Nifty Realty index.
3.2 PRE AND POST DEMONETISATION IMPACT IN TERMS OF SHARE VALUE OF NIFTY AUTO INDEX
Exhibit no 8: Trend chart of Nifty Auto Index on Pre and Post Demonetisation move
NIFTY AUTO INDEX - TREND NIFTY AUTO INDEX - TREND
CHART CHART
(Pre Demonetisation) 14000 (Post Demonetisation)
12000
10000 12000
10000
8000
8000
6000
6000
4000
4000
2000 2000
0 0
09-Jan-17
09-Jan-18
09-Nov-16
09-Mar-17
09-May-17
09-Nov-17
09-Mar-18
09-May-18
09-Jul-17
09-Sep-17
09-Jul-18
01-Jun-15
01-Oct-14
01-Oct-15
01-Oct-16
01-Apr-15
01-Aug-15
01-Apr-16
01-Jun-16
01-Aug-16
01-Dec-14
01-Feb-15
01-Dec-15
01-Feb-16
Nifty Auto Close price Nifty Auto Close Pirce
Source: Secondary data
From the above chart, in pre-demonetisation In post demonetisation period (From November 9,
period (October 2014 to November 8, 2016), the 2016 to July 2018), Nifty Auto Index shows a
stocks experienced a bearish (downward) trend in bullish trend and reached its peak by 11867 points
first half of the study to 6950 points on Feb 2016. on Jan 2018 in its share price. And now the Index
In the last half of the study the stock is is experiencing bearish trend, that has fallen to
experiencing bullish (upward) trend of 9913 10752 points in July 2018
points during Oct 2016.
Exhibit 9: RSI (Relative Strength Index) chart of Nifty Auto index on Pre and Post Demonetisation period in terms of share
value.
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RSI CHART - NIFTY AUTO INDEX RSI CHART OF NIFTY AUTO
(Pre Demonetisation) INDEX
(Post Demonetisation)
120 100
90
100 80
70
80
60
60 50
40
40
30
20 20
10
0 0
01-Apr-15
01-Jun-15
01-Apr-16
01-Jun-16
01-Dec-14
01-Feb-15
01-Aug-15
01-Dec-15
01-Oct-15
01-Feb-16
01-Aug-16
01-Oct-14
01-Oct-16
31-May-17
30-Nov-16
30-Nov-17
31-May-18
31-Jan-17
31-Mar-17
30-Sep-17
31-Jan-18
31-Mar-18
31-Jul-17
31-Jul-18
RSI
RSI
Source: Secondary data
From the above chart, in pre-demonetisation bullish trend of the stock that is said to be
period, the level of RSI for Nifty Auto index is overbought which is a good signal to the investors
said to be between 30-50 where majority of the to make investments. In April 2018, the RSI has
investors were holding their securities, i.e. neither reached its peak to 90 that indicates overbought.
bought nor sold Now the RSI is said to be between 30-50 where
In Post Demonetisation period, initially the level maximum of the investors were holding their
of RSI was maximum between 50-80, shows the securities, i.e. neither bought nor sold
STATISTICAL ANALYSIS
Table no: 4 Statistical analysis on the basis of stock returns of Nifty Auto Index on pre and post demonetisation period.
Pre Demonetisation period Post Demonetisation period
Statistical tools Nifty 50 (%) Nifty Auto (%) Nifty 50 (%) Nifty Auto (%)
Average returns 0.02 0.06 0.07 0.03
Variance 0.01 0.02 0.004 0.01
Standard deviation 0.97 1.25 0.66 0.98
Correlation 0.0253 0.7570
Covariance 0.0003 0.005
From the above table it is clear that,
Both Nifty 50 and Nifty Auto indices had a rise in their result of the correlation analysis i.e. the highest
returns in post demonetisation when compared to pre correlation coefficient is 0.7570 on post
demonetisation. Variance of the returns of indices is demonetisation period indicating strong positive
reduced in post demonetisation period i.e. spread of the relationship (positive correlation) exists between the
returns is less. The Standard deviation is minimized returns for Nifty 50 and Nifty Auto indices. Hence
from its mean in post demonetisation period. Nifty 50 and Nifty Auto indices move in same
The covariance and correlation analysis is calculated direction which indicates to the investors to go
between the mean returns of Nifty 50 and Nifty Auto confidently in developing a better (diversified)
Indices for the period October 2014 to July 2018. The portfolio with Nifty 50 and Nifty Auto indices
REGRESSION ANALYSIS
Exhibit 10: Regression Analysis between returns of Nifty 50 & Nifty Auto indices on Pre and Post demonetisation period.
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NIFTY 50 - NIFTY AUTO (Pre NIFTY 50 - NIFTY AUTO (Post
Demonetisation) Demonetisation)
6.00% 5.00%
4.00%
4.00%
3.00%
2.00% 2.00%
1.00%
NIFTY 50 NIFTY 50
0.00%
0.00%
-8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00%
-3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00%
-1.00%
-2.00%
-2.00%
-4.00% -3.00%
NIFTY AUTO
NIFTY AUTO
y = 0.0328x + 0.0005 y = 1.1295x - 0.0005
-4.00% R² = 0.5731
R² = 0.0006 -6.00%
-5.00%
-8.00% -6.00%
Source: Secondary data
Table no 5: Showing the summary output for the regression analysis between Nifty 50 & Nifty
Auto indices on pre and post demonetisation period
Regression Statistics (Nifty 50 – Nifty Auto)
Statistics Pre Demonetisation Post Demonetisation
0.0238 0.7569
Multiple R
0.0006 0.5731
R Square
-0.0013 0.5720
Adjusted R Square
0.0124 0.0064
Standard Error
514 429
Observations
Note: The regression analysis is calculated on the mean (X), there is a 1.13% of increase in Nifty Auto index
returns of Nifty 50 and Nifty Auto indices for the period returns. R square is 0.5731 on the variation in Nifty
October 2014 to July 2018. Nifty 50 index returns Auto (Y) is explained by Nifty 50 regression line.
(Independent variable) is plotted along x-axis and Nifty Hence there is a significant impact of Nifty 50 on Nifty
Auto index returns (Dependent variable) is plotted along y- Auto index.
axis. The regression line shows how Nifty Auto index
returns varies with Nifty 50 index returns. From the above FINDINGS
table and graph, it is clear that, the regression line is sloping Sectoral Indices Performance of BSE & NSE on
upwards that tells us that as Nifty 50 index returns increase The Basis of Mean Returns
along the x-axis, the Nifty Auto index returns also tend to a) Pre-demonetisation returns – Most affected
increase along the y-axis. sectors were Realty and Consumption, whereas
In pre demonetisation period, in the regression most benefited ones are Metal and FMCG.
equation, for every 1% increase in Nifty 50 index b) Post demonetisation returns – Most affected
returns (X), there is a 0.03% of increase in Nifty Auto sectors were Auto, Realty and Consumer
index returns. R square is 0.0006 on the variation in Durables, whereas most benefited ones are Nifty
Nifty Auto (Y) is explained by Nifty 50 regression PSE (Private Sector Enterprise), Infrastructure,
line. Information Technology, Healthcare and Oil &
In post demonetisation period, in the regression gas.
equation, for every 1% increase Nifty 50 index returns
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The Nifty Metal Index is said to be the cash king long term benefit from the stock market. Both the
for the year 2016. Automobile and the Real estate sector was hard hit by
c) Both BSE SENSEX and NIFTY 50 indices are demonetisation move, but now slowly these sectors are
experiencing bullish trend and reached 37500 and gaining momentum in the economy. The demonetisation
11320 points respectively during post move, showed a negative impact in the short term, but in
demonetisation. the long term, it shows a tremendous positive growth to the
FII Vs DII’s trading activities, in pre-demonetisation economy.
period (Oct 2014 to Nov 8,2016), the FII’s net
purchases recorded maximum on Nov 2014 & July REFERENCES
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on Aug 2015. In post-demonetisation period (Nov Financial crisis and market efficiency: An
2016 to July 2018), the FII’s net sales was maximum in Empirical analysis of Indian Stock Market”,
November 2016 but it was almost equal to DII’s net Indore Management Journal, January – March
purchases, Now the DII’s net purchases is experiencing 2011, Volume 2 Issue 4, pp. 27-39.
a bullish trend and gaining a positive steady growth in Anupam Rastogi and Smita Mazumdar (2015),
the Indian Stock Market. “Corporate Debt Restructuring (CDR) and its
Both Nifty Realty and Nifty Auto indices impact on Firms’ Stock market performance: A
experienced bearish (downward) trend in post study of Pre and Post CDR Share price
demonetisation period. From January 2017 to current movements”, South Asian Journal of
date (July 2018), the indices are reviving their Management, Volume no 23, pp. 18-26.
momentum to bullish (upward) trend. R. Chakrabarti (2001), “FII Flows to India: Nature
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Auto and Nifty Realty indices is said to be between 30- Finance, October – December 2001, Vol. 2, No. 7.
50 where majority of the investors are holding their Gurmeet Singh (2015),”FII Flows to Indian
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index is regaining their momentum with RSI values Business review, June 2015, Vol. 9, Issue.
indicating overbought of stocks which is a good signal Gyanpratha (2013), “Influence of FII flows to
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securities. GL Kaminsky and SL Schmukler (1999), “What
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In Post Demonetisation period, the highest correlation P. Mukherjee and M Roy (2011), “The nature of
coefficients for both the indices (Nifty Realty & Nifty determinants of investments by Institutional
Auto) in comparison to Nifty 50 index was seem to be investors in the Indian Stock market”, Journal of
positively correlated and moves in same direction, Emerging Market Finance, November 2011, Vol.
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developing a better (diversified) portfolio with Nifty Shivani Inder and J. S. Pasricha (2015), “
50, Nifty Realty and Nifty Auto Indices. Empirical testing of Asian Stock Market linkages
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need to look beyond it. Investors have to make wise
investment in the potential (long term growth) sectors to get
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