Demonetisation - A year later. Dull equity markets do a nifty about-turn

After falling for the first few months post-demonetisation, equity markets started recovering as calendar year 2017 progressed.

Nifty 50 has gained 22.3 per cent (closing as on November 3). The index of top 500 companies according to market capitalisation (or compiled as NSE 500) has also risen about 26 per cent. The Nifty Smallcap 100 index jumped 41 per cent.

“The impact that you saw because of demonetisation and the slowdown that followed…I think that past has more or less been taken care of. Incrementally, if you see the data on the ground, things are coming back on track,” said Shibani Kurian, head of research at Kotak Mutual Fund.

Performance has been continuously improving since the March 2017 quarter. Companies started showing better-than-expected volume growth across categories like jewellery, paints and consumer electricals in that quarter.

The June 2017 quarter was good as demand got a boost on account of freebies and discounts offered by companies ahead of GST implementation. The September 2017 quarter has also been good, not only because the demonetisation effect has worn off but also because listed companies are benefiting from the shift in demand to the organised sector on account of GST.

Among sectoral indices, real estate has been the biggest gainer — up 59 per cent in one year — because it was also the biggest loser after demonetisation was announced (down 12 per cent in a single trading session after the announcement). Besides, sentiments towards the sector are less negative now with implementation of RERA, the government’s thrust on affordable housing and stable interest rates.

The second biggest gainer has been the metal index (up 44 per cent), but more due to rising commodity prices following improving growth in developed economies and not so much due to demonetisation. Banks and financial services have been the third biggest gainers — up 25-30 per cent not only because of the benefits of demonetisation but also because of the robust performance of private banks and that of NBFCs focused on affordable housing.

But the real and direct victims of demonetisation — automobile and FMCG companies — are still struggling. This is because after witnessing shocks in demand post-demonetisation, they had to make adjustments/changes in the run-up to GST implementation.

Nifty Auto and Nifty FMCG indices remained relative under-performers among the gainers and are up only 12 and 18 per cent respectively in last one year.