On an unsuspecting November evening, as millions of Indians were either returning back home from office or browsing through news channels to catch the latest cricket update, came a nuclear bomb straight out of Prime Minister Narendra Modi’s Mann Ki Baat show announcing the withdrawal of 500 and 1000 INR worth notes form current circulation. Imposed with the main intention of curbing fake currency menace, black money, corruption and terror funding from its roots, this dynamic move resulted in removal of 86% of the money in circulation overnight. Such a magnanimous event was bound to have a farfetched effect on the economy along with all its sectors.

Various countries have attempted the demonetisation drive in the past with some being successful while the others weren’t equally lucky. However one thing was common amongst all of them, and that was their crippling economic condition such as 1920’s hyper-inflation in Germany making demonetisation the need of the hour. India was the first country to bring upon the demonetisation drill in spite of its economy being at a perfectly healthy state. Sectors such as construction and real estate which are fuelled by the black economy received the worst blow from this carefully thought out initiative. Let’s take a closer look into how the Indian stock market got affected by this late 2016 event.

·       Information Technology – This export oriented and banking channel driven sector remained unperturbed by the demonetisation drive thus getting into a better position for handling shocks. Being the largest cashless sector of Indian economy, the operations remained smooth sailing in the IT flied irrespective of cash being shrunken out of the system. On the contrary, the renewed challenges faced by the dynamic sector enhanced its operational excellency.

·       Automobile – The post demonetization return of the automobile industry dipped down by 1.12%. The major cause behind the same was the mandatory PAN disclosure clause imposed by the government officials while proceeding with auto purchases save apart the two wheelers. The luxury car segment which had forever helped the rich segment stack their excess cash also came under regulation revealing its negative impact on NSE.

·       Banking – The banking officials had to spend sleepless nights courtesy the demonetisation drive. Mornings were equally hectic following large queues of people lined outside the counters trying to deposit their existing cash and get hold of the freshly printed notes. However the banking sector is proposed to be highly benefitted in the long run as all the black money gets deposited into the account helping the banking bodies address their NPA issues.

·       Real Estate – Winds of demonetization followed by the implementation of the Benami Properties Act imparted a major blow to the real estate sector which was largely driven by black money. Real Estate had turned into a safe haven for parking illegal funds as it was highly unregulated. Its multi-layered tax structure comprising of VAT, service tax, stamp duty and registration charge imparted a higher sale price to assets belonging to this sector over and above its actual documented rate. With the new system in place, RBI decreased home loan rates for attracting mass investment. This paved the path for hiking up the demand of real estate in India. Affordable housing segment also benefitted significantly with lower EMI structure following the levy of various subsidies. The foreign investment in the Indian real estate sector in 2016 amounted to USD 5.7 billion thus improving its performance in Bombay Stock Exchange by 50%  during 2016-17.

·       Consumer Goods – This is a totally cash driven sector as you will hardly find someone buying soap and paying by card. Sales of this segment contributing to 56% of Indian GDP underwent a significant dip in the first quarter following demonetisation.

·       Infrastructure – This sector is massively driven by investments coming from government sector as well as loans granted by banks. Demonetisation hiked up the liquidity level of the banking bodies for spending the same on welfare, infrastructure and other such sectors. The NIFTYINDRA index also swayed in sync with such positive advancements.

This surgical strike on black money did manage to rattle the malicious operators from the core. However it will require the backing of much more reforms in tax and real estate sector in upcoming days to curb the regeneration of illegal funding. Provided a proper fiscal discipline is maintained in the background, India will surely benefit from the demonetization drive in the long term.