Demonetization and its Impact on Indian Capital Market

The Indian government implemented a major change in the economic environment by demonetizing the high value currency notes of Rs 500 and Rs 1000 from the midnight 8th of November 2016. This involved withdrawing circulation of said currency and gradually replacing them with a new set of currency notes. The main purpose of demonetisation of the currency is to stop counterfeiting of the banknotes used for terrorist activities and crack down the black money circulation in the country. The present study is an attempt to evaluate the impact of demonetization on Indian capital market with special reference to selected indices of Bombay Stock Exchange (BSE). In order to evaluate the impact of demonetisation on capital market opening and closing value of selected indices of BSE six months period prior to 8th November and after 8th November has been considered. The sample consists of ten indices of BSE viz. SENSEX and other sectors such as capital goods, consumer goods, consumer discretionary goods, FMCG, infrastructure, industrial, utilities and Bankex. There is a strong evidence to suggest that demonetisation have significant impact on selected sectoral indices considered for the study. The study also reveals that indices of manufacturing, FMCG and consumer discretionary goods sensitive increased during the post demonetisation period while sensitivity of industrial goods and infrastructure decreased during the period.