Stock market investors couldn’t care less about demonetisation
A considerable amount of time and tonnes of newsprint have been spent since 8 November 2016, when demonetisation was announced, analysing its impact on economic growth and stocks.
This fiscal year, the goods and services tax (GST) got added as another disruptive reform that risked upending growth in the near term. Indeed, economic growth forecasts have been lowered for the current year, with a fair share of the blame going to these two events.
With the macro picture looking sombre, one would expect that the stock markets too should exhibit a funereal atmosphere. On 9 November 2016, the day after the Prime Minister announced demonetisation, the broad market fell by 6%. In the coming months, the damage done by demonetisation to demand was visible. GST too saw fears rising of lost business due to teething troubles and due to the informal sector’s reluctance to adapt to a more transparent way of doing business. Several studies claim that jobs have been lost in the process, which is a risk to consumption.
But stock markets seem to be living on another planet if you consider the situation compared to 8 November 2016.
Of the stocks in the CNX 200 Index, 161 have gained since then while 44 have gained by 50% or more. Only 39 stocks are in the list of losers.
The top 10 (or even 20) gainers are a diverse bunch. It comprises a retailer, a non-banking financial company (NBFC), a steel producer, a conglomerate and a watch/jewellery company. The ones that lost the most include a telecom company, a few pharmaceutical names, and an automobile major. That indicates that in most cases, the reasons for the gains or losses were specific to the stock or in the case of pharma, problems specific to sector and unrelated to demonetisation or GST.
To sum up, four-fifths of the CNX 200 stocks are in positive territory and a fifth have gained by more than 50% since 8 November 2016, despite economic growth getting hit. Of course, those owning the 39 stocks that declined would have seen their portfolio value shrink. The age-old cliché of picking the right stocks holds true even when disruptive events take place. The link between events that disrupt the economy and stock returns can prove to be weak at times. This surely was one of them.