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What Does Modi's Decision Mean for You and Your Portfolio?
Wed, 9 Nov Pre-Open

It all happened yesterday. As the world was trying to gauge the outcome of the US presidential elections, India was busy assimilating what Mr Narendra Modi had to say. In a nationwide address, Prime Minister Modi announced that currency notes of Rs 500 and Rs 1,000 denominations will be illegal from midnight Tuesday.

The move is aimed at curbing corruption and the flow of black money in India. In the words of Mr Modi-

  • Corruption and black money is something we have fought for immediately after assuming office... There is a time when you realise that you have bring some changes in society, and this is our time to feel the same.

As per us, the above development is a step in the right direction. The move would help India fight its battle against corruption and black money. The black money would re-enter the banking channel and every penny will be accounted for. Bringing money into the banking system would mean paying taxes on the unaccounted money earlier. Finally, this would help the government in realizing tax revenues, which could then be used for the welfare of the Indian economy.

In conclusion, taking a broad brush, big picture approach, the move to ban 500 and 1000 denomination notes is certainly a move in the right direction. Along with the GST roll out, it will certainly give a big fillip to the India growth story.

As far as stock markets are concerned, initial feelers seem to suggest that Modi's black money crackdown will weigh on Indian markets and indicates a gap down opening. Market participants can expect volatility in the short-term.

On the other hand, the development can be a big positive for Indian stock markets in the long-term. There are two ways the stock markets can benefit. One, from the very improvement in fundamentals the move would lead to. Second, from the possibility of more money moving into stocks as black money investment channels dry up.

So the question then comes as should one go out and buy every stock one can lay his hands on?

In our view, the above move should not have any marked change in your investment approach. The principles of stock selection still remain the same: buying fundamentally strong companies, run by a competent management team and available at reasonable valuations.

Meanwhile, we would certainly keep you posted about whether our views on companies and sectors warrant any significant change on the back of the above development. So stay tuned and do keep an eye out for updates from our end.

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Nov 23, 2017 09:13 AM