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Successful Stock Picking in the Post-Demonetisation World - Views on News from Equitymaster

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The Equitymaster Research Digest

Successful Stock Picking in the Post-Demonetisation World
Nov 29, 2016

We confronted about the obvious contradictions in his views, John Maynard Keynes once remarked, 'When facts change, I change my mind. What do you do, sir?'

We wonder what Keynes would say about demonetisation? Have the facts changed? Does it warrant a change of mind on the Indian economy?

No doubt, the economy will continue its short-term paralysis. After all, cash transactions form a huge chunk of overall transactions in the country. And with cash suddenly worthless, the replacement will take time to work its way through the system.

The long-term impact is where things get complicated.

While many believe the move will forever change the way our economy operates, others argue it will be business as usual when things normalise.

Either way, we're left fitting together the pieces of an even more complex puzzle. How will the move impact stock prices? Will all sectors be affected? Which will be worst hit? Which will benefit?

Okay, let's assume for a moment that demonetisation will bring great long-term benefits to the economy.

Does this mean we should all go out and buy stocks by the fistful? Well...not so fast.

The Curious Case of the '91 Reforms'

Hark your mind back to the economic reforms of 1991, a watershed moment in India's economic history. Never before had reforms been undertaken on such a large scale. Investors had every reason to turn bullish and plunge headlong into stocks. But what happened next may surprise you.

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