Sensex, Nifty seen falling on Wednesday over scrapping of Rs1,000, Rs500 notes

Indian stocks are slated to open sharply lower on Wednesday after the government in a surprise move withdrew currency notes with a denomination of Rs1,000 and Rs500, effective from Tuesday midnight, in an attempt to crack down on black money.

The focus of the market suddenly shifted from the outcome of US elections which is likely on Wednesday morning, to a late evening announcement by Prime Minister Narendra Modi announcing the scrapping of the higher denomination notes.

“Indian markets will open down on Wednesday. With the noose tightening on black money, the consumption story goes for a complete toss,” said independent market analyst Ambareesh Baliga.

Still, while the short-term impact is likely to be negative, the move is a good one, said analysts.

“Structurally, it is a positive move. I hope the market looks beyond the immediate jitters on consumption which are likely to bother in the very near term,” said Navneet Munot, chief investment officer at SBI Mutual Fund.

“The long-term investors should take it positively, and probably buy at the dips,” he said.

Others echoed his views.

“It’s a long term positive. It helps formalizing of the economy. However, it is disruptive in the short-term,” said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

“The move should help real estate prices become affordable. In the long-run, this move will be beneficial for the financial sector. In the near-term, global factors will be more important for the Indian markets,” added Chhaochharia.

The government’s actions come in the backdrop of a sustained effort to target black money in the country.

The Prime Minister disclosed that so far the government has unearthed Rs1.25 trillion in black money.

It has just closed out a voluntary disclosure scheme, ahead of which Modi had warned that this was the last and final chance for the errant to come clean.

A BSE spokesman confirmed the exchange will be open for trading on Wednesday.

“As of now, yes,” a National Stock Exchange (NSE) spokesman said when asked if the exchange was set to be open as usual for trading on Wednesday.

Ahead of the Prime Minister’s announcement, BSE’s 30-share Sensex closed 0.48% higher at 27,591.14 points on Tuesday. NSE’s 50-share Nifty climbed 0.55% or 46.50 points to close at 8,543.55 points on Tuesday.

Going forward the government has also capped ATM withdrawals to Rs10,000 a day to Rs20,000 a week. These limits are temporary.

Pallavi Pengonda contributed to this story.