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Modi's Cash Ban Did Not Affect Some Stocks... Here's Why - Views on News from Equitymaster

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The Equitymaster Research Digest

Modi's Cash Ban Did Not Affect Some Stocks... Here's Why
Nov 30, 2016

Prime Minister Modi has left the markets confused. Demonetisation has caused a lot of uncertainty. Markets hate uncertainty. It makes life difficult. It is easy to analyse a company with a stable business model, strong cash flows, and a shareholder-friendly management.

But there aren't many companies like this. What about the rest of them?

This is where the uncertainty comes in. If the market is confident about the future, it's not hard to make forecasts for these 'not-so-fundamentally-strong' companies.

This 'confidence', i.e. lack of uncertainty, was the main reason behind the bull market. The narrative went like this:

  • Reforms such as GST, the bankruptcy code, and the single window clearance for building plan approvals are now a reality.
  • After two successive deficient years, the monsoon was good. Thus, pent up rural demand will be unleashed.
  • The seventh pay commission will give a boost to consumption.
  • Commodity prices and inflation are still low.
  • Interest rates have some more room to fall.
  • The government's focus on infrastructure is a big long-term positive.
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