Indian stocks to fall by as much as 15% to Rs1,800 crore as traders brace for fallout from demonetisation

By ANI ANI India will likely see a steep fall in the market value of Indian stocks this week as traders scramble to find a way out of a potential collapse in the value of their holdings.

While the market has been in freefall, stocks have not been able to gain much momentum in the past two weeks as the Reserve Bank of India (RBI) imposed a new Rs 500 and Rs 1,000 currency note ban on July 8.

Investors have been struggling to convert their old cash into new ones due to a massive surge in black money.

While this has affected the stock market, the impact will be felt on other sectors of the economy, including agriculture and manufacturing.

On Monday, the market capitalisation of all stocks in the country was just Rs 1.4 lakh crore, which is about Rs 300 crore less than the day before.

On Wednesday, the stock index was trading at Rs 1 lakh crore while the benchmark Sensex was at $1,099.59.

However, analysts say that this will not last.

They point out that the Indian stock market has gone into a tailspin with the RBI announcing the ban.

Investors are in panic mode, which will further dent the demand for equities, said Gopal Sengupta, a senior analyst at BNY Mellon Securities in New York.

Sengupta says that India’s stock market could drop by 15-20 per cent.

“We think the market is now in a tailspike and that is the last thing that we want,” he said.

Analysts have warned that the impact of demonetization on the economy will not only be felt in the domestic markets but could even affect global markets as well.

“The RBI has put pressure on investors to sell their stocks in advance of the new RBI note ban.

It is unlikely that the RBI is ready to pull the rug out from under the markets, given that the country is already struggling to recover from the devastating effects of demonitisation,” said Pankaj Bhargava, founder of the advisory firm, Pankas Wealth Management.

Ajit Pai, the former RBI governor who is now the chairman of the Indian market advisory group, also warned investors against panic.

“I think there is a risk of investors losing confidence and the rupee depreciating,” he told NDTV.

“If this happens, investors may have to sell stocks in bulk.

This will be bad for the economy as the rupees depreciation could further hurt the consumer economy.”

Bhargava said the RBI had to act swiftly to prevent a loss of confidence in the economy and that a big shock like the demonetised note ban will have to be avoided.

“In order to get back to normalcy and not have this big shock, the RBI needs to do something fast to boost the economy.

I believe the RBI can do it,” he added.

Analyzing marketsIn India, the Indian rupee has risen by 4.75 per cent since demonetising.

The rupee, which had been trading at 66.12 to the US dollar, has gained about 10 per cent against the greenback.