CEO, Samco Securities & StockNote
The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

Post-1946 demonetisation, stock market fell for 2 years, but 2016 will be different

Investors should take the opportunity and start purchasing shares for long-term portfolio while traders can initiate long positions with proper stop losses.

The domestic stock market has reacted negatively to demonetisation and opened lower after digesting the intense social media heat both for and against demonetisation. However, the market gained sanity later and reacted calmly by the close of the week.

Much has been said about demonetisation but no one denies the pragmatic outcome of the same. Banks have started reducing interest rates and some of the private lenders have already reduced rates by 15 to 20 bps.

In the stock market, open interests in index futures have fallen sharply and are running on the lower side of the annual averages. Volatility, too, is cooling down slowly, which is good for the health of the market.

Stocks that are banned in the derivative segment stand at a negligible level, indicating a moderation in leveraged positions. Normalcy is creeping back into both the stock market and the economy.

Past demonetisations and effects on the Stock market:
It would be intriguing to know how the stock market had responded during the demonetisation drives in 1946 and 1978. Culling from RBI data, post 1946 demonetisation there was a massive fall in the stock market for two years, but in 1978 the stock market rallied massively for next 3-5 years after the demonetisation.

The stock market is altogether an independent animal with has scant regard to demonetisation, if any. However, such moves should bring a positive shift towards a cashless economy. Combined with GST, it would possibly help tame corruption and a new era of meritorious society should emerge

Technical Outlook:
The stock market is continuing a long spell of correction wherein it has already corrected 50 per cent in terms of price and 38 per cent in terms of the entire move. The market is currently at the most critical juncture, taking support at 8,000 level of the Nifty.

The resistance and support lines passing through the 8,000 mark acted as strong resistance last year and, as per the law, alternation should act as a powerful support this time.

Short-term traders should initiate aggressive long positions, keeping stop losses below 8,000 for a quick rally, while investors can selectively build long-term portfolios at current levels.


Expectations for the week:
The stock market is limping back to normalcy. Greed and fear seem to have abated and all the external macro-factors have almost been discounted.

The massive fall in stock prices on fears of a slowdown seems to be overblown from market’s perspective. It is well known that the market is a six-monthly forward discounting machine.

Any negative event, whose effects are to be felt within one or two quarters, is almost always discounted. Thus, there is nothing that investors must worry about regarding the effects of demonetising high-value notes, as it has already been discounted by the market.

The recent fall, therefore, creates a compelling opportunity to buy great businesses. Recall Warren Buffet’s purchase of Coca-Cola shares during the 1987 stock market crash, which eventually turned out to be the highest return generator in the entire portfolio.

Investors should take the opportunity and start purchasing shares for long-term portfolio while traders can initiate long positions with proper stop losses for low-risk high-reward trade propositions. The Nifty50 closed the week 2.68 per cent down at 8,074.

(The author is CEO, SAMCO Securities. Views and recommendations expressed in this section are his own and do not represent those of Please consult your financial advisor before taking any position.)




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