These Stocks Have Rallied 50-100% Post Demonetisation

Apurva Sheth

We have been writing about demonetisation as a failed economic experiment. The probability of success of demonetisation is inversely correlated with the number of rupees coming back to the system.

As per the latest RBI data, nearly 75% of the old currency in circulation is already back. And the majority of the remaining is expected to be back by December 31.

This leaves us with one question - where is the black money and how much of it is in cash?

The White Paper on Black Money released by the Finance Ministry in 2012 gives interesting insights. The Income Tax (IT) Department conducted 24,000 raids from 2006 to 2012 across India. The cash they seized formed a very small portion of the total undisclosed wealth - just 4.9%, or Rs 1,975 crore, of the total undisclosed income worth Rs 40,426 crore.

Now let's talk about black money. According to the white paper and a World Bank estimate, black money as a percentage of our GDP is in the range of 15-23%. Our GDP for 2015-16 was Rs 135.76 lakh crore. Assuming 20% of this is black money, then we get a figure of Rs 27.15 lakh crore.

That means Rs 1.33 lakh crore is stored in the form of cash (4.9% of Rs 27.15 lakh crore). This is the money the government is targeting through demonetisation. Even if the government is able to recover 50% of this by taxing it, then it will recover Rs 66,000 crore.

Centre for Monitoring Indian Economy (CMIE) estimates that just the transaction costs of demonetisation will amount to Rs 1.28 lakh crore. The fall in GDP growth because of demonetisation will be much greater than this.

All this leaves us with only one question: Was it all worth the trouble?

The answer is probably much clearer now than ever. But whether we like it or not, demonetisation is a reality. However, as traders, we shouldn't be bothered about that at all. The only thing we should be concerned with is price. It reflects the sum of all expectations - good, bad, and everything else.

If the price is about to fall, traders sell and make money. If price is about to rise, they buy and make money. Simple.

Most stocks went in to a tailspin immediately after demonetisation. The index witnessed a huge drop after the announcement. Most of the heavyweights were down. Mid caps and small caps were battered even worse than the blue chips.

However, it wasn't bad for the stocks. Some managed to outperform by a wide margin. In the table below, I have listed five stocks that have moved in the range of 50-100% post demonetisation.

Gains after Demonetisation
Company Name Closing Price on November 8 Closing Price on December 13 % Change
TVS Electronics 109.60 218.45 99.32%
RS Software (India) Ltd. 68.30 122.00 78.62%
Bartronics India Ltd. 14.85 24.05 61.95%
ITI Ltd. 31.20 49.25 57.85%
Tanla Solutions Ltd. 38.75 56.75 46.45%
Source: - Ace Equity

These stocks are from the IT industry. TVS Electronics and ITI deal in hardware. RS Software, Bartronics, and Tanla Solutions are software players. A common thread is that they are perceived to be direct or indirect beneficiaries of demonetisation. They are involved in businesses like building software for online payment gateways, manufacturing point of sale machines, and even helping the government with its pet project, UIDAI.

Demonetisation is hurting many companies and industries. But it could be a game changer for these companies.

Now, before you rush to take any action...let me warn you: I am not an expert on fundamentals. I don't know anything about their financials or valuations. So you should do adequate research on your own or consult your financial advisor before you do anything with them.

My objective in bringing these stocks to your attention is more important than that.

I want to emphasize the fact that, even in worse market conditions, some stocks will go against the trend. Even in the fiercest bear market, some stocks will buck the trend and remain stable or move up. Some stocks will outperform others.

Why does that happen?

Stocks are a part of the market, and they move along with it. But stocks are individual entities as well. They have a separate cycle of their own that does not always coincide with the market's. Nevertheless, these cycles do exists...and they make trading possible. Traders look for repetitive cycles. Once they've recognised cycles it is easy to identify tradeable patterns to make money.

At times, some stocks bottom out well before the market does. Then they may start to rally as the broader market crumbles, which could be the case with the stocks listed above...you never know. But the point is that cycles do exist and you can benefit from them if you know how to trade them.

I have been analysing these cycles as I make trade recommendations to our Swing Trader subscribers, and we have seen them work in our favour. I will talk about them in detail next time.

Have you studied long term cycles in stocks? Share your views in the Club or share your comments here.

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1 Responses to "These Stocks Have Rallied 50-100% Post Demonetisation"
Babu
14 Dec, 2016
The black money in the system is of cumulative in nature ie accumulated over a period of say past 10-20 years. the calculations shown here is for one year only. ex: 1.33 lakh crores mentioned is for the year 2015-16 so I think the article has not factored the past years in estimating the black money and probable additional tax collectionLike 
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