The IUP Journal of Applied Economics
The Impact of Demonetization on Indian Stock Market: A Sectoral Analysis of Bombay Stock Exchange

Article Details
Pub. Date : Oct, 2019
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE41910
Author Name : Surya Dev and Pranati Mohapatra
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 18



In 2016, the Indian government demonetized the ₹500 and ₹1,000 notes, the two highest denomination currencies in the system. This was a rare event that affected the entire Indian economy. The present study aims to find out the impact of the demonetization on the stock market by applying the event study methodology on 19 sectoral indices of Bombay Stock Exchange. The period of study spans from April 1, 2015 to November 24, 2016. The estimation period is from April 1, 2015 to September 30, 2016. The Cumulative Abnormal Returns (CAR) are calculated for 25 trading days before the event day to 10 days after it, with November 9, 2016 considered as the event date. The results of the study show that demonetization had a positive impact on indices like the public sector enterprise (CPSE), power (SIPOWE), infrastructure (Infra), banks (SIBANKEX), healthcare (SI0800), metals (SI1200) and utilities (SPBSUTIP), and negative impact on indices like auto (SI1900), FMCG (SI0600), consumer discretionary goods (SPBSCDIP), realty (SIREAL), basic materials (SPBSBMIP), and tech (SIBTEC), while capital goods (BISO200), oil and gas (SI1400), energy (SPBSENIP), industrials (SPBSIDIP), and telecom (SPBSTLIP) indices were not affected. The findings also reveal that there is no leak about the event to the market as the CAR for the pre-event period is not significant for any sector.


On November 8, 2016 at 20.00 IST, the Prime Minister of India announced on television that the Indian government would withdraw ₹500 and ₹1,000 notes from November 9, 2016. These notes accounted for 86% of the total currency in circulation at that time. (Dharmapal and Khanna, 2018). The announcement came as a surprise to the nation. The drive of demonetization was intended to remove black money and fake currency from the economy that would in turn reduce corruption and terrorist activities (Kumar, 2017). The other motive was to convert the Indian economy into a cashless one (Ghosh et al., 2017).

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