One year of demonetisation: Short-lived scare for stock markets

Markets currently trade at over 20 times its one-year forward earnings, compared to the long-term average of 16 times

Prime Minister Narendra Modi’s decision to ban high-value currency notes triggered a knee-jerk reaction in the stock market, with the benchmark Sensex and Nifty declining seven per cent within a fortnight of the announcement. Several stocks in the microfinance, real estate, and other consumer-facing sectors crashed more than 50 per cent, creating panic and fear in the market. The sell-off was triggered by doomsday projections by economists that the note ban would lead to a prolonged weakness in the economy and further delay the earnings recovery cycle.

The Nifty, which was trading above the 8,500-mark before demonetisation, slumped to a seven-month