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Major Asian stock markets have opened the day deep in red. Stock market in Japan and Hong Kong are trading lower by 2.3% and 3.8% respectively.
The rupee is currently trading at 66.71 per US$.
Indian share markets have opened the day on very weak note. The BSE Sensex is trading lower by 1339 points (down 4.9%) and NSE Nifty is trading lower by 476 points (down 5.6%). Both, BSE Mid Cap and BSE Small Cap have collapsed and are trading lower by 4.1% and 4.6% respectively.
Major sectoral indices have opened the day on a negative note with stocks from realty sector are witnessing maximum buying interest. The S&P BSE Realty index is trading down by 8.9%.
In a move that surprised the entire nation, the Government of India (GOI) has scrapped the 500 and 1,000 denominations note effective from today.
However, there is no reason to panic for people who have these notes as the same can be exchanged or deposited with the bank till 30 December 2016. However, there is a restriction on the exchange part too. You won't be able to exchange cash exceeding Rs 4000. Anything over and above Rs 4,000 will be receivable by way of credit to the bank account.
This indeed is a major move to curb black money and the effect of the same will be felt by the people hiding black money with them. When they would suddenly deposit huge chunks of money (i.e undisclosed income) in their bank account or exchange them, the banks will share their details of their Permanent Account Number (PAN) with the Income Tax Authority which in-turn can lead to scrutiny in relation to the source of the income.
Further, all banks and ATMs are scheduled to remain closed today.
This decision is a very positive one from a stock market perspective. People will have to pay taxes on this unaccounted income in order for the money to be useful. Otherwise, the unaccounted money in the form of 500 and 1000 rupee notes will be useless.
Once taxes are paid on these unaccounted sums, the money will become legal and a part of it will flow in financial instruments including equities.
We must commend the bold decision by Mr Narendra Modi to ban these notes. Despite the over hanging fear of losing vote bank, the government has taken this massive step to curb black money. It appears that the move to ban 500 and 100 denomination notes is certainly a move in the right direction.
Vivek Kaul has written an excellent piece yesterday explaining the economic as well as political reasons on why Mr Modi banned the Rs 500 and Rs 1,000 notes.
Tanushree Banerjee too has written a mind boggling piece stating how this move will benefit stock markets and have an adverse impact on real estate. Here is some of the excerpt from the article
Moving on to another big development happening in the United States of America (USA)- US Presidential Elections 2016. The counting of votes has started and surprisingly Mr Donald Trump is in the lead.
Global markets are reacting negatively to this development with benchmark indices in Japan and Hong Kong trading lower by 2.3% and 2.4% respectively.
The outcome of US elections will play an important role in determining the trajectory of the global markets in the short run. The markets are expecting Mrs. Hillary Clinton to win the presidential elections.
However, if this does not happen fickle minded Foreign Institutional Investors (FII) may flee from emerging markets to safe heavens like such as gold, Japanese Yen, Swiss Franc and Euro. In fact, both gold and yen have already made handsome gains in the run up to the US elections.
Markets have crashed and 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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