Impact of Demonetisation on Indian Stock Market

Demonetisation is the act of divesting a currency unit of its status as legal tender. It is a tool to handle black money in the economy by lowering the cash circulation in the country which is directly concerned with the corruption. It directly or indirectly influences the various sectors. The effect of taking out so much money from the market is obviously affect the various sectors, which are driven by the black economy like real estate, construction, etc. But this move of government has also affected few sectors that are driven by cash. The move of demonetisation has affected the Purchasing power. The stock market is impacted by two types of risk: systematic and unsystematic risk. The Demonetisation represents systematic risk spread across the Indian stock market with all the shares and benchmarks representing its magnitude of affect. This research paper is trying to analyse the impact of demonetisation on the Indian Stock market. This study is using Event Study Methodology and Granger Causality test to analyse the impact of various sectors (Nifty Bank, Nifty Pharma, Nifty FMCG and Nifty Realty) on the NIFTY50 index during the Demonetisation Period. The Period for the study has been taken from 1/4/2016 to 7/11/2016 and 8/11/2016 to 31/3/2016. The result is being observed from the comparison of both pre and post-event window.