50 days of demonetisation: Sensex, Nifty down up to 4%

All but two sectors in red; S&P BSE Sensex tumbles 3.5%, Nifty50 tanks 4.2% during the period

Fifty days have gone since the government announced ban on old notes of Rs 500 and Rs 1,000 denomination with things getting normal day-by-day, except for the domestic market.   

Key equity benchmarks Sensex and Nifty50 are down up to 4% from the levels on November 8, the day PM Narendra Modi announced to withdraw 86% of currency in circulation as legal tender. All except two sectoral indices have recorded negative returns during the challenging period for aam aadmi and investors alike.  

Data showed the BSE Realty index plunged the most (down 14.4%) since the note ban, followed by BSE consumer durables (down 10%), BSE Auto (down 9%), BSE Bankex (down 7.1%) and BSE FMCG (down 5.3%).

“Real estate will take a while to mend as we expect government to attack the black money, and benami property through more policy initiatives. Ultimately, there will be a consolidation and emergence of a strong, reliable and organised sector which can be good for home buyers in the long run,” explains Dipen Sheth, Head - Institutional Research at HDFC Securities.

Pankaj Pandey, Head of Retail Research, ICICI Securities points out the real estate slowdown will also have an impact on cement demand as 60% of the sales come from the housing segment. There is no index for cement on BSE.

Most experts believe sectors that will recover first include FMCG, consumer durables and auto as demonetisation has only caused demand deferment in these sectors, and not a permanent dent.

Dipen Sheth of HDFC Securities notes consumer durables and auto can bounce back quickly, especially the former, given rapid urbanisation, aspirational consumption and relatively low penetration as compared to FMCG.

For banking sector, experts said that a surge in low cost deposits may improve lenders’ earnings in 2017, but a longer than anticipated slowdown in credit demand and any further delays in the resolution of non-performing assets (NPA) may keep their profitability at bay.

Among other sectoral indices the BSE Capital Goods (down 4.8%), the BSE Metals (down 3.7%), the BSE Healthcare (down 3.4%) and the BSE PSU (down 0.3%) have seen hefty losses during the period. The BSE Power remained little changed.

The S&P BSE Sensex has tumbled 3.5% to 26,626.5 level, while Nifty50 tanked 4.2% to 8,186 during the same period. 

Meanwhile, the BSE Oil & gas and the BSE IT were the only two gainers and added 2% and 3.3%, respectively.

Sheth said that IT and pharma sectors are fairly insulated from demonetisation.

“With expectations running low because of sector specific overhangs like Trump, regulatory headwinds in pharma and automation/cloud/digital wave in IT and valuations consequently affordable, we feel both sectors carry deep skillsets and excellent management and promoter quality,” says Seth.