CHAPTER – I

INTRODUCTION

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 INTRODUCTION
Demonetization is an act of seizing a currency unit of its status as legal tender. Demonetization is
necessary whenever there is a need to change national currency. The highest demonetization note
printed by the Reserve Bank of India, Rs 10,000 note was demonetized in January 1946 and
again in January 1978. On 8 November 2017, the Government of India announced the
demonetization of all $500 and $1,000 banknotes. Around 97% of demonetized amount has been
deposited into banks i.e. Rs14.97 trillion ($220 billion) out of Rs16.4 trillion as on Dec 30, 2017.
The government claimed that the action would “curtail the shadow economy and crack down on
the use of illicit and counterfeit cash to fund illegal activity and terrorism”. The sudden nature of
the announcement and the prolonged cash shortages in the weeks that followed created
significant disruption throughout the economy, threatening economic output. A resultant
impact on stock market was also well expected. Demonetization leads to a situation where the
country would suddenly feel short of the money that it needed to enable the transactions. This
leads to decrease in prices of goods and services. Until money comes into circulation the
purchasing power of people would negatively impact the prices in various industries, it could
be real estate, Automobiles, steel, cement, etc. which in turn affect the prices of stocks
negatively. The sectors affected by demonetization are Banking, Automobiles,
Cement,Consumer goods, Telecom, Real estate, Paint, Pharmaceutical, FMCG, Building
Material, NBFC and Agriculture.

Demonetization in India and President Election in US affected stock market, where market
indices dropped to six months low in the week following the announcement of demonetization.
BSE crashed around 1789 points and NIFTY over 541 points. Hence there is a need to
understand how much the demonetization has affected the stock prices and to analyse the stock
price movement pre and post demonetization.Demonetization is the act of stripping
a currency unit of its status as legal tender. It occurs whenever there is a change of national
currency: The current form or forms of money is pulled from circulation and retired, often to be
replaced with new notes or coins. Sometimes, a country completely replaces the old currency
with new currency.The opposite of demonetization is demonetization, in which a form of
payment is restored as legal tender.

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1.1 OBJECTIVES OF THE STUDY

• To measure the returns of the selected stocks, pre and post demonetization, using Holding
• Period Return and BHAR.
• To find the expected returns of the selected stocks pre and post demonetization, using
CAPM Model.
• To study the impact of Demonetization on stock prices of selected sectors

1.2 SCOPE OF THE STUDY

This study focuses on impact of demonetization on stock prices of selected sectors. 5 sectors and
top 5 companies in each sector are considered for this study for which the data is collected from
Bombay Stock Exchange (BSE). The closing prices of stocks for last 6 months (2 months before
demonetization and 4 months after demonetization) were used to find the returns.

1.3 RESEARCH DESIGN

This study is Descriptive in nature. Judgment sampling is used in data collection, to select
relevant industries.

1.4 SOURCES OF DATA

Secondary data of stock prices from BSE is taken. To examine the impact of demonetization
news sources like articles, journals, newspapers etc. are referred.

1.5 PERIOD OF DATA

In order to analyse the impact of demonetization on stock market, 6 months’ data has been
collected starting from 7th September 2017 to 8th march 2017 which consists data of 2
months before demonetization and 4 months after demonetization. For this 5 sectors with 5
companies from each sector are considered such as Automobiles, Banking, Consumer durables,
Real estate and Telecommunication.

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1.6 Research and Methodology

(a) Holding Period Return (HPR)

HPR is the total return received from holding an asset or portfolio of assets over a period of time,
generally expressed as a percentage.
Holding Period Return = (End of Period Value – Initial Value) / Initial Value * 100

(b) Capital Asset Pricing Model (CAPM)

CAPM is a tool which is used to describe the relationship between systemic risk and expected
return on assets. The formula to calculate returns based on CAPM is:
CAPM= rf + β (rm – rf) (2)
Where in Rf= Risk free rate of return, β= Beta of the security, Rm =Expected market return.
CAPM is used to find expected stock prices in the study.

(c) Buy and Hold Abnormal Returns (BHAR)

Buy and hold abnormal return is a strategy where investors buy the stocks and hold them for
long period irrespective of the price fluctuations in the market expecting higher returns in future.
BHAR is used to find the abnormal return if any during and after demonetization in 2017.

(d) Event study

Evet study has been done to analyse the impact of demonetization on stock market which
includes three windows: - Estimation window, Event window and post event window. Here
estimation window is referred as situation before demonetization, event window is referred as
demonetization month and post event window is referred to as post demonetization situations.

(e) ANOVA with PostHoc analysis

ANOVA is used to analyse the impact of demonetization. ANOVA is used to test if there is
significant difference among the mean returns in the 3 event windows. Post-hoc analysis is a
process of analysing if any two population means are equal in the given data set.

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1.7 LIMITATIONS :-
• Only 13 sectors were considered for the analysis.

• Time limit is a major constraint.The study has taken into consideration only

112 days after demonetisation thus the study was done between the period of 9th

November 2016 to 28th February 2017 but the result may vary during the longrun.

• The sample selected was limited to 55 industries only.Therefore thefindings

given on the basis of this research cannot be extrapolated (applied) to the entirePopulation.

• Destruction of old currency units and printing of new currency units involve costs which as

to be borne by the government and if the costs are higher than benefits then there is no use of

Demonetization.

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 CHAPTER – II
REVIEW OF LITERATURE

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In 8th Nov, 2017, PM Narendra Modi announced the cancellation of Rs 500 and Rs 1000 notes
(aka demonetization) which resulted in 86% of the circulated money being removed from the
economy overnight. This was primarily done to curb the black money, make all the counterfeit
currency worthless and attack terrorism at its roots.
To understand the impact on the stock market, let’s first understand how significant a move this
is. In the past many countries have attempted demonetization, some successfully and some
unsuccessfully, but all of them were done when their economies were having major problems
like hyper-inflation in Germany in the 1920s. This is the first time that a perfectly healthy
economy has attempted it and that too to target black money. Because this is a first, there are
varied opinions amongst economists on what the impact will be in the future.

The immediate impact of removing so much money from circulation is of course the impact it
can have on several sectors that are driven by the black economy like real estate, construction
etc, but more so also the sectors that are more driven by cash, because they are the first that are
affected when so much money is suddenly removed from circulation.

(1) Demonetization Impact on the Stock Market and Stock Investors

What will be the Demonetization Impact on Stock Market? asked one of the readers of this blog.
Though I am not a SEBI registered Investment Adviser, therefore, cannot suggest stocks but i
can always share my views. At the macro level from a sector perspective, the stock market is
zero sum game until unless there is dire need to exit the stock market. For example, suddenly the
FII buying stopped and they become a net seller. In such a scenario, the retail investors should
exit the market. At the end of the day, retail investors will lose money in the stock market if FII’s
exit.

Under normal conditions, the investors are bullish or bearish on certain sectors. The overall
bullish trend in the stock market does not mean that all the sectors are expected to perform well.
For example, PSU and metal stocks are underperforming despite bullish trend. I will pull out
money from IT/Pharma and put it in Banking/Auto. Therefore, i mentioned it is a zero-sum

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game. It all depends on the sentiments and the judgment of the fund manager and investors how
the sector is expected to perform in future.

Every news/change in macroeconomics/change in govt policies impacts the investor’s sentiments

specific to the particular sector. For example, post-GST implementation, experts were bullish on
logistics stocks. Similarly, after implementation of 7th pay commission, the experts were bullish
on Auto and White goods.

In my opinion, demonetization impact will be far reaching on stock markets and stock investors.
At this stage, things are not 100% clear and more clarity will emerge with the time. In my
opinion, in the stock market, only those investors can make money who can correctly gauge
what’s coming your way. Though it is a no-brainer. I also did some study on demonetization
impact on the stock market and thought of sharing my observation with the readers of this blog.
Let’s check out

(2) Demonetization Impact on the Stock Market and Stock Investors

At the macro level, the cash dependent and consumption based sectors will be negatively
impacted. On the other hand, the financial sector will be the biggest beneficiary.

(a). Banking:

In my opinion, banking will be the biggest beneficiary of demonetisation. Banks are flush with
the money. The only catch i foresee if the bank is not able to lend/deploy this money effectively
or NPA’s increase. The demonetization is the beginning of digital payment era. The govt will
take all steps to make India a cashless economy. It will also positively impact the operational
efficiency of the banks.

In future, we will need less no of branches and over the counter banking may be thing of past.
Though it is very futuristic. The reason for optimism is a sharp increase in digital payments. The
UPI and Mobile wallets offered by the banks will support digital payment. Also, as i shared in
my previous posts that i am anticipating govt will reduce the limit on cash transactions to 2L or

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3L for all types of transaction and may also limit the cash holdings per person. It will further fuel
the growth in digital payments.

In banking, I personally avoid banks with high NPA. In the current scenario, there are very
limited quality banking stocks. To summarize, all the banking stocks may not be benefited from
demonetization impact. If you can identify rights stocks at this stage then you are home.

(b). Auto Stocks:

In my opinion, demonetization impact will be negative on Auto Stocks especially 2 wheeler.

Normally, people pay by cash in small towns and cities. It is also true for entry/mid segment 4
wheeler. The auto sector should expect a slowdown. Not many people are aware that Auto and
Luxury goods were one of the key beneficiaries of black money. Though, of late the govt, made
it mandatory to quote PAN but still it was not possible to control the cash transactions. Before
demonetization, the people knew different methods to cover up these purchases i.e. in some
cases vehicle purchase was used to convert black money to white money. summarize, there will
be a slowdown in the auto sector especially 2 wheeler. I am not expecting these stocks to do well
in future.

(c). Food and Beverage:

According to my study, it will be one of the hard-hit sectors. The demonetization impact will be
negative for food and beverage. To share the demonetization impact, recently i visited a couple
of my regular restaurants. You will not believe that some of these are closed temporarily or
reduced their timings. The reason being, they are not willing to accept digital payment and
willing to forego the business in lieu of cash payment. One of the co-owner told me offline that
business is not viable if the share of cash transactions drop significantly.

Therefore, FMCG companies predominantly into food and beverage business may get impacted
negatively. On the contrary, listed QSR’s may be benefited because people may shift to QSR’s.

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(d). Consumer Goods:

In my opinion, consumer goods both electronic and white goods will be negatively impacted. I
observed rampant cash transactions and there is also a parallel grey market.

Similar to Auto, people with black money preferred cash payments to buy consumer goods. I
don’t know the % of such transactions but definitely demonetization impact will be visible on
consumer goods.

(e). Retail:

The retail sector will hit hard by the demonetization impact. The payments through the retail
channel are not tracked. In past i observed people buying gift cards through cash and gifted to
their loved ones. There was NO need to quote PAN. Now, such transactions will not be possible
with the flushing out of black money from the system. The people will reduce spending. Another
reason will be people who lost black money will drastically cut down the spending.

(f). Telecom:

I am not a big fan of telecom stocks. For a change, demonetization impact on telecom stocks will
be positive. In my opinion, telecom players have done a lot of groundwork on digital payments.
Almost all telecom players have mobile wallet offerings for digital payment. The demonetization
will help telecom player to increase the uptake of their mobile wallets thus is a positive
development for the telecom sector. I am expecting that as the mobile is now personalized
device, therefore, uptake of mobile wallet of telecom player might be more compared to
independent mobile wallets.

3. Words of Wisdom:

The economists are predicting a slowdown in economic growth and customer spending. This is
because of what i explained in this post i.e. cash spending will reduce. There is a set of
customers who are simply allergic to digital payments or spending from white money. The

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reason being, they don’t want their spending to be tracked. They will prefer not to spend rather
pay through digital mode or from accounted income

In laymen terms, the vanishing of black money from the market will hit some sectors hard.

As we don’t have the breakup of cash spending in various sectors, therefore, it is difficult to
gauge the exact impact. In my opinion, high-value transactions in cash will hit hard. There was a
joke on Facebook “Don’t show off or post a pic of your Hublot watch on Social Media, Income
tax department is watching”.

Here is how the various sectors have been impacted after the demonetization move and what we
think could happen in the future:

(a)Real Estate
Since Real Estate is driven by the black economy, this was the sector that was probably the worst
hit of all the sectors. The Nifty Realty index gapped down after the day of the demonetization
move and corrected -25% ( as indicated in the chart below, the NIFTYREALTY bounced of the
Auto-SR very strong support of 162.5 on a weekly chart) before recovering a bit. It is still down
almost -17% from 8th Nov.

Since
many real estate properties have a big black money component, they are expected to go through

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at least a 20-30% correction, and hence for the foreseeable 2 quarters at least, chances are that
this sector will probably go lower before it starts to improve.

(b) Consumer Durables

This sector is primarily driven by cash and hence has also been hit hard. It is down by almost
11.7% since the demonetization announcement.

(c) Banking
The Banking sector took an immediate hit the day after the announcement but recovered on Nov
10th. But, it has been subsequently correcting as it is still grappling with trying to replenish the
cash in the economy. However, this is one sector which is expected to benefit in the long term
because a lot of the black money will be deposited in bank accounts and the excess funds in the
banking system will also help address the non-performing assets (NPA) problem that many of
the banks are facing due to bad loans. Due to these NPA problems, a lot of the infrastructure
funding etc has also been affected and hopefully, that should also be addressed when the current
cash crunch is reduced and economy claws back to normalcy.

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(d) Infrastructure
The infrastructure sector is driven by massive investments from government as well as loans
from banks. One of the healthy effects of demonetization is to increase the liquidity in the
banking system as well as increase the funds that the government has for spending on items like
infrastructure, welfare etc, so the Infrastructure is an obvious beneficiary of that. The fact that the
NIFTYINFRA index has not been affected much (as is confirmed by the fact that it is up
marginally since Nov 8th in the chart below):

(e) Information Technology

The IT sector has been largely unaffected by the demonetization as it is export oriented and
hence relatively better positioned to handle shocks in the Indian economy. Moreover it is
probably also largely a cashless sector and hence also not affected due to the cash being taken
out of the economy. The NIFTYIT chart below shows that the IT sector is actually doing better
than from what it was on Nov 8th.

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In conclusion, we can probably summarize the effect of demonetization on the overall economy
as follows:

• In the short term, GDP will be down for at least a 1-2 quarters before recovering.

• A lot of black money will be converted to white and be deposited into the banks
which will in turn help in the NPA problem that banks are facing.

• In the longer term, reducing of black money economy in the future should bring more
people in the tax net and hence lower taxes as well as interest rates which will bode
well for the overall economy.

Although this was what is called a surgical strike on black money and will have immediate
impact on the existing black money, most economists agree though, that this move is not
sufficient and several other reforms like tax reforms, real estate reforms etc need to be
undertaken to curb the black money generation in the future.

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 CHAPTER – III
INDUSTRY PROFILE
&
COMPANY PROFILE

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 3.1 COMPANY PROFILE

Background:
Karvy Consultants Limited was started in the year 1981, with the vision and enterprise of a
small group of practicing Chartered Accountants. Initially it was started with consulting and
financial accounting automation, and carved inroads into the field of registry and share
accounting by 1985.

An Overview:

KARVY, is a premier integrated financial services provider, and ranked among the top five in
the country in all its business segments, services over 16 million individual investors in
various capacities, and provides investor services to over 300 corporate, comprising the who
is who of Corporate India. KARVY covers the entire spectrum of financial services such as
Stock broking, Depository Participants, Distribution of financial products - mutual funds,
bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance
Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs,
among others. Karvy has a professional management team and ranks among the best in
technology, operations and research of various industrial segments.

ACHIEVEMENTS:

• Among the top 5 stock brokers in India (4% of NSE volumes)

• India's No. 1 Registrar & Securities Transfer Agents

• Among the top 3 Depository Participants

• Largest Network of Branches & Business Associates

• ISO 9001:2000 certified operations by DNV

• Among top 10 Investment bankers

• Largest Distributor of Financial Products

• Adjudged as one of the top 50 IT uses in India by MIS Asia

• Full Fledged IT driven operations

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 • First ISO-9002 Certified Registrars in India
• Ranked as “The Most Admired Registrar” by MARG
• Largest mobilize of funds as per PRIME DATABASE
• First depository participant from Andhra Pradesh.
• Handled over 500 public issues as Registrars.
• Handling the Reliance account, which accounts for nearly 10 million account holders?
Range of services:

• Stock broking services

• Distribution of Financial Products (investments & loan products)
• Depository Participant services
• IT enabled services
• Personal finance Advisory Services
• Private Client Group
• Debt market services
• Insurance & merchant banking
• Mutual Fund Services

Karvy Consultants limited deals in Registrar and Investment Services.Karvy is one of the
early entrants registered as Depository Participant with NSDL (National Securities Depository
Limited), the first Depository in the country and then with CDSL (Central Depository
Services Limited).

Karvy stock broking is a member of National Stock Exchange (NSE), The Bombay Stock
Exchange (BSE), and The Hyderabad Stock Exchange (HSE). The services provided are multi
dimensional and multi-focused in their scope to analyze the latest stock market trends and to
take a close looks at the various investment options and products available in the market.
Besides this, they also offer special portfolio analysis packages.

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 CHAPTER – IV & V
DATA ANALYSIS AND INTERPRETATION

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4.DATA ANALYSIS
The returns of the selected stocks pre and post demonetization was calculated using Holding
Period Return (HPR), Buy-and-Hold-Abnormal Return (BHAR) and the expected returns of the
selected stocks was calculated using CAPM Model. The study period was divided into three
windows: (1) Estimation window (from 8 September to 7 October, 2017), (2) Event window
(from 8 September to 7 October, 2017) and (3) Post-event window (from from 8 September to 7
October, 2017). MS Excel and SPSS 21 are used in the analysis.

Table no : 4.1 Calculation of Stock returns

Estimationwindow Eventwindow Post-eventwindow

Mean CAPM Mean CAPM Mean CAPM

returns returns returns
STOCK return BHAR return BHAR return BHAR Industry

Bajajauto -0.34 -0.27 -3.30 -0.08 0.09 1.43 0.06 0.11 -2.69 Automobiles

MarutiSuzuki 0.19 -0.27 7.04 -0.18 -0.19 -3.31 0.19 0.16 3.94 Automobiles

Tatamotors -0.16 -0.32 0.17 -0.46 -0.30 -12.99 0.03 0.18 -8.36 Automobiles

HMT -0.23 -0.17 -1.36 0.17 -0.22 8.25 -0.03 0.11 -17.09 Automobiles

BOSCH -0.27 -0.21 -2.06 -0.22 -0.16 -4.51 0.08 0.17 -2.89 Automobiles

SBI -0.17 -0.36 -0.23 0.04 -0.16 6.41 0.07 0.17 -6.66 Banking

Bank ofBaroda -0.29 -0.47 -2.82 -0.04 -0.14 2.78 0.03 0.20 -9.87 Banking

PNB 0.06 -0.52 3.91 -0.13 -0.28 -2.92 0.11 0.18 -3.80 Banking

HDFC -0.01 0.02 3.02 -0.20 -0.20 -2.58 0.11 0.14 -0.16 Banking

ICICI -0.48 -0.32 -5.93 1.45 -0.23 9.78 0.08 0.17 -5.76 Banking

Videocon 0.01 0.07 3.58 0.01 0.05 5.18 -0.02 0.07 -8.58 Consumerdurables

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Calculation of Mean return, CAPM and BHAR
In the Estimation window, BPL stock has the highest BHAR (positive) and a Phoenix mill has
the lowest BHAR (negative) among the selected stocks. In the case of realized mean return, BPL
has the highest mean return and Phoenix mill has the lowest realized mean return (negative)
among the selected stocks. Videocon has the highest expected return as per the CAPM model
(positive) whereas DLF has the lowest expected return as per the CAPM model (negative).

Fig no : 5.1Calculation of Stock returns

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Interpretation:
Calculation of Mean return, CAPM and BHAR
In the Estimation window, BPL stock has the highest BHAR (positive) and a Phoenix mill has
the lowest BHAR (negative) among the selected stocks. In the case of realized mean return, BPL
has the highest mean return and Phoenix mill has the lowest realized mean return (negative)
among the selected stocks. Videocon has the highest expected return as per the CAPM model
(positive) whereas DLF has the lowest expected return as per the CAPM model (negative).

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Table no : 4.2 Industry specific BHAR analysis

Automobiles Estimation Event Post Event

Window Window Windo

Bajaj -3.2982 1.4261 -2.6868

Maruti 7.0372 -3.3086 3.9399

Tatamot 0.1736 -12.9899 -8.3552

HMT -1.3553 8.2453 -17.0925

BOSCH -2.0551 -4.5074 -2.8913

Fig no : 5.2 Industry specific BHAR analysis

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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Interpretation:
In the estimation window, only 2 out of 5 selected companies in Automobile sector have shown
Positive BHAR. In the event window, only 2 out of 5 selected companies have shown Positive
BHAR. In the post event window, only 1 out of 5 selected companies in Automobile sector have
shown Positive

Table no : 4.3 Banking Industry

Banking Estimation Event Post Event

Window
Window Window

SBI -0.2318 6.4077 -6.6625

BOB -2.8206 2.7823 -9.8733

PNB 3.9146 -2.9173 -3.8005

HDFC 3.0172 -2.5762 -0.1457

ICICI -5.9296 9.7809 -5.7617

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Fig no : 5.3 (b). Banking Industry

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Interpretation:
In the Estimation window only 2 out of 5 selected companies in banking sector have shown
Positive BHAR.. In the Event Window, only 3 out of 5 selected companies in banking sector
have shown Positive BHAR.

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Table no 4.4 Consumer Durable Industries
Consumer Estimation Event Post Event
durables
Window Window Window

Videocon 3.5811 5.1827 -8.5836

BPL 71.9172 -13.8620 -22.4375

PG elect 1.9311 -6.6130 6.6407

MIRC 12.2141 7.2089 -17.5549

Sharp 13.7823 -6.2700 27.3517

Fig No: 5.4 (c). Consumer Durables Industry

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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Interpretations:
In the Estimation Window, all 5 Consumer durables companies have shown positive BHAR. In
the event Window, 2 out of 5 Consumer durables companies have shown positive BHAR. In the
Post Event Window, 2 out of 5 Consumer durables companies have shown positive BHAR.

Table no: 4.5 Telecommunications Industry

Tele Estimation Event Post Event

Communication Window Window Window

BAirtel 2.3987 9.8780 -0.9344

Idea -1.8842 0.7422 30.2278

Tatacom 20.0709 4.4174 8.4401

Relicom -2.6573 -17.8660 -14.4220

MTNL -9.1397 -1.1796 27.2712

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Fig no: 5.5 Telecommunications Industry

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Interpretation:
In the estimation window, only 2 out of 5 selected companies in Telecommunication sector have
shown Positive BHAR. In the event window, only 3 out of 5 selected companies in
Telecommunication sector have shown Positive BHAR. In the post event window also, only 3
out of 5 selected companies in Telecommunication sector have shown Positive BHAR.

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Table no 4.6 Real Estate Industries
Real Estimation Event Post

estate Window Window Event

Window

DLF 2.9413 - 17.1850

21.4619

Oberoi 14.6903 -0.6551 2.9812

Godrej 2.4035 -8.6390 11.6550

Prestige 5.4469 7.8856 1.8907

Phoenix -10.3114 -1.9272 -12.1768

Fig no 5.6 Real Estate Industry

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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Interpretation:
In the Estimation window, 4 out of 5 selected companies in Real estate sector have shown
Positive BHAR. In the Event Window, 1 out of 5 selected companies in Real estate sector have
shown Positive BHAR. In the Post Event Window, 4 out of 5 selected companies in Real estate
sector have shown Positive BHAR. More stocks in Banking and Telecommunication have shown
positive BHAR in the Event window.
The demand for consumer goods was low since people didn’t have cash to pay, but these
demands are those which can be postponed and fulfilled in future when they have cash.
The real effect is on retail sector where transactions happen in the form of cash and people faced
difficulties to meet their daily needs.
One of the major sectors affected by demonetization was real estate. Experts say, there has been
40% drop in sales in cities like Mumbai, Bengaluru, Chennai, Kolkata etc. as a result of which
stock prices had also come down, but these fluctuations were temporary and it is more of
behavioural investment because people were hesitating to invest in real estate.
To study the impact of Demonetization on stock prices of selected sectors using ANOVA with
POST HOC ANALSIS
Hypothesis
H0: μ1 = μ2 = μ3
H1: Mean returns are not equal

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Table no : 4.7 ANOVA onRealized MeanReturns

SumofSquares Df MeanSquare F Sig.

BetweenGroups 1.363 2 .681 2.726 .072

WithinGroups
17.999 72 .250
Total

19.362 74

Fig no : 5.7 ANOVA onRealized MeanReturns

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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Table no : 4.8ANOVA onCAPM Returns

SumofSquares Df MeanSquare F Sig.

BetweenGroups 3.709 2 1.854 25.325 .000

WithinGroups 5.272 72 .073

Total 8.981 74

Fig no : 5.8ANOVA onCAPM Returns

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

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Table no: 4.9 POSTHOCTestsfor multiple comparisons

(I)FACTOR (J)FACTOR MeanDifference Std.Error Sig. 95%ConfidenceInterval

LowerBound UpperBound
(I-J)

2.00 .1984320000 .1414171293 .345 -.139996707 .536860707

1.00
-.1293560000 .1414171293 .633 -.467784707 .209072707

3.00

-.1984320000 .1414171293 .345 -.536860707 .139996707

1.00

2.00 -.3277880000 .1414171293 .060 -.666217707 .010640707

3.00
.1293560000 .1414171293 .633 -.209072707 .467784707

1.00 .3277880000 .1414171293 .060 -.010640707 .666217707

3.00

2.00

ANOVA and POST HOC ANALYSIS on Realised returns of stocks

Inference:
Given Sig.> 0.05, (Value = 0.072), accept Null hypothesis that mean returns of the stocks in the
three windows are equal.From the multiple comparison table also, the mean returns are not
significantly different.

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Fig no: 5.9 POSTHOCTestsfor multiple comparisons

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Interpretation: ANOVA and POST HOC ANALYSIS on Realised returns of stocks

Inference:
Given Sig.> 0.05, (Value = 0.072), accept Null hypothesis that mean returns of the stocks in the
three windows are equal.From the multiple comparison table also, the mean returns are not
significantly different.

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 Table no : 4.10 POSTHOCTestsfor multiple comparisons

(I)FACTOR (J)FACTOR Mean Difference Std. Error Sig. 95% ConfidenceInterval

LowerBound UpperBound
(I-J)

-.2171040000* .0765385905 .017 -.400270327 -.033937673

2.00
-.5412040000* .0765385905 .000 -.724370327 -.358037673

1.00

3.00
.2171040000* .0765385905 .017 .033937673 .400270327

-.3241000000* .0765385905 .000 -.507266327 -.140933673

1.00

2.00

3.00

.5412040000* .0765385905 .000 .358037673 .724370327

.3241000000* .0765385905 .000 .140933673 .507266327

1.00

3.00

2.00

ANOVA and POST HOC ANALYSIS on CAPM returns of stocks

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Inference:
Given Sig. < 0.05, reject Null hypothesis and accept alternate hypothesis that theoretical returns
of the stocks in the three windows are not equal. From the multiple comparison tables also
theoretical returns in the 3 windows were not equal.
Fig no: 5.10 POSTHOCTestsfor multiple comparisons

Chart Title
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Interpretation:

ANOVA and POST HOC ANALYSIS on CAPM returns of stocks

Inference:
Given Sig. < 0.05, reject Null hypothesis and accept alternate hypothesis that theoretical returns
of the stocks in the three windows are not equal. From the multiple comparison tables also
theoretical returns in the 3 windows were not equal.

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 CHAPTER NO: VI
FINDINGS, SUGGESTIONS&
CONCLUSION

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 6.1 FINDINGS

• The impact on stock market is temporary i.e. the prices of stocks were fluctuating in the
week of announcement of demonetization. But overall as found in the study and proved
theoretically, the demonetization has not affected the stock market to an extent that
investors expected.

• Since demonetization has not affected the stocks of the selected sectors, investors need
not worry about their investment and it was a better opportunity for investors and
speculators to purchase stocks at lower prices when they were trading at lower prices in
the week of announcement of demonetization.

• Speculators who buy at lower prices with the expectations of selling them at higher prices
in future had expected that this move would drastically affect the market and the impact
would be long period but this study proved that demonetization had no impact on stock
market.

• Considering the various sectors which are exposed to demonetization, there are measures
which can make these sectors stable. In real estate sector rate cuts and concessions on
housing loans are key factors to improve the sectors.

• In ecommerce, online payment, card payment, mobile wallet payment on delivery of

goods can be better options to retain customers and sales.

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 6.2 SUGGESTIONS

• In tourism sector, providing cash at tourist destinations and availability of card payment
system can be factors to be considered to attract tourists and to maintain present revenue
for the government.

• In automobile sectors, many companies are promoting cashless transactions for payment
of money but these attempts depends on customers’ adaptability to new changes.

• Aviation companies can offer discounts to attract new and retain existing customers
where Zero EMI cost, buy now pay later, exchange offers can be better options.

• Coming to building materials, huge spending by government on infrastructure could

be a solution till the money comes into circulations. But for agriculture, the
alternatives like online banking and payments and other modes are not suitable, the
only way to bring that into normal position is by bringing more money into
circulation.

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 6.3 CONCLUSION

The current study is done to analyses whether the demonetization has affected the stock market
or not. As proved by this study the demonetization had no impact on the stock prices. However
the demand for goods and services of different sectors was low but it was temporary and
recovered with more money in circulation. As expected by some investors, there should have
been a greater impact on stock market where according to some investors the impact is for short
term.

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 BIBLIOGRAPHY

I- Books

Demonetization – Won or Lost By Mr. Brijesh Singh[a] & Dr. N. BabithaThimmaiah

A study on the Impact of Demonetization-Danny WanlambokNongsiej

Demonetization and E-banking in India Dr.SwetaSinghal

Demonetization a means to an end-Ramgopal Agarwal

Demonetization and its Impact on Indian Economy

A Review - Arif Shaikh, Shrirang Deshpande

II- Websites

www.bseindia.com

www.moneycontrole.com

http://euroasiapub.org

https://www.cirsd.org

https://ro.uow.edu.au/aabfj/vol12/iss2/7/

http://puneresearch.com/media/data/issues/58b858c52dbb2.pdf

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 I- References

Dr. Anju Garg

Associate Professor and Head, Economics Department, DAV (PG) College,

Bulandshahr.

Dr. Partap Singh

Associate Professor, Dept.of Management studies, Samalkha Group of

Institutions(SGI), Samalkha, Panipat, Haryana (India).

Virender Singh

Resource Person to Extension Lecture, Government College Jind (India).

M.Angel Jasmine Shirley

M.C.A., M.Phil., M.Ed.,(Ph.D), Maharishi University, Lucknow, India.

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 List of Figures

Fig No: TITLE PAGENO

5.1 Calculation of Stock returns 36

5.2 Industry specific BHAR analysis 37

5.3 Banking Industry 39

5.4 Consumer Durables Industry 40

5.5 Telecommunications Industry 42

5.6 Real Estate Industry 43

5.7 ANOVA onReleased MeanReturns 45

5.8 ANOVA onCAPM Returns 46

5.9 POSTHOCTestsfor multiple comparisons 48

5.10 POSTHOCTestsfor multiple comparisons 50

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 List of Tables

Table No: TITLE PAGENO

4.1 Calculation of Stock returns 35

4.2 Industry specific BHAR analysis 37

4.3 Banking Industry 38

4.4 Consumer Durables Industry 40

4.5 Telecommunications Industry 41

4.6 Real Estate Industry 43

4.7 ANOVA onReleased MeanReturns 45

4.8 ANOVA onCAPM Returns 46

4.9 POSTHOCTestsfor multiple comparisons 47

4.10 POSTHOCTestsfor multiple comparisons 49

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 DECLARATION

I hereby declare that the project report entitled “Impact of Demonization on

Indian Stock Market” carried out at Karvy Stock Broking Ltd.Is my

Original work written and submitted by me to Master’s Degree in finance of

Osmania University. I also declare that this project has not been submitted in

any other university or institution.

P.VARUN KUMAR

1422-176-72-043

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 ACKNOWLEDGMENT

I take this opportunity to extend my profound thanks and deep sense of

gratitude to the authorities of KARVY Ltd. for giving me this opportunity to
undertake this project work in their esteemed organization. I profusely thank
Mr. P. Manohar (Asst. Manager Finance).

My sincere thanks to Principal Dr. PREETHI CHYRYSOLITE, HOD

Dr. P. SUHASINI, and my project guide Mrs. N. ARCHANA. For the kind
encouragement and constant support extended in completion of this project work.

I am also thank full to all those who have incidentally helped me, through their
valued guidance, co-operation and unstinted support during the course of my
project.

P.VARUN KUMAR

1422-176-72-043

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 A

PROJECT REPORT

ON

“IMPACT OF DEMONITIZATION ON INDIAN STOCK MARKET”

AT

“KAARVY SROCK BROKING LTD”

BY

P. VARUN KUMAR

H.T.NO: 1422-17-672-043

SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF THE

MASTER”S DEGREE IN BUSINESS ADMINISTRATION

(2017-2019)

Department of Business Administration

CSI Institute of P.G. Studies

(Affiliated to Osmania Univeraity)

East Marredpally, Secundrabad.

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ABSTRACT
ABSTRACT

Demonetization is an act of seizing a currency unit of its status as legal tender. Demonetization is
necessary whenever there is a need to change national currency. The government claimed that
the action would “curtail the shadow economy and crack down on the use of illicit and
counterfeit cash to fund illegal activity and terrorism”. Demonetization in India and President
Election in US affected stock market, where market indices dropped to six months low in the
week following the announcement of demonetization. BSE crashed around 1689 points and
NIFTY over 541 points. Hence there is a need to understand how much the demonetization has
affected the stock prices and to analyze the stock price movement pre and post demonetization.
The Objectives of the study were (a) to measure the returns of the selected stocks, pre and post
demonetization, using Holding Period Return and BHAR,(b)to find the expected returns of the
selected stocks pre and post demonetization, using CAPM Model and (c) to study the impact of
Demonetization on stock prices of selected sectors.

This study focuses on impact of demonetization on stock prices of 5 selected sectors,

Automobiles, Banking, Consumer Durables, Telecommunication and Real Estate. 5 companies
in each sector were considered for this study. The closing prices of stocks for last 6 months were
used to find the returns, starting from 7th September 2016 to 8th march 2017 which consists of
data of 2 months before demonetization and 4 months after demonetization. Realized return,
CAPM Return and BHAR analysis has been carried out in the study. Using ANOVA on the
BHAR in the three windows, it was concluded that demonetization had no impact on stock
returns during the study period.

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