Demonetisation Shock replay: hold or panic-sell?

The overnight note ban. The Nifty 50 slipped 7% over seven weeks and was back above its 8 November level by late January 2017. In this replay a ₹1,00,000 portfolio that moves with the Nifty 50 splits in two on day three: one investor holds, the other sells everything at that day's close and stays in cash. Holding finished 7.0% ahead of panic-selling.

Every step of the replay is a real daily closing level of the Nifty 50.

Window
Nov 8, 2016 to Feb 28, 2017
Index fall at its worst
7.4%
Recovery
22 trading days
Held portfolio at the end
₹1,03,933
Panic-sold on day 3
₹97,106

What happened, day by day

  1. Day 0. 8 Nov 2016. The market has closed with the Nifty 50 at 8,543.55. At 8 PM, the Prime Minister announces that ₹500 and ₹1,000 notes stop being legal tender at midnight. Your ₹1,00,000 is invested across the Nifty 50.
  2. Day 1. 9 Nov. The Nifty closes 1.3% lower on a day that also brings the surprise US election result.
  3. Day 3. Day 3. The Nifty is 2.9% below where you started, and bank queues fill every news channel. You sell everything at the close and keep ₹97,106 in cash.
  4. Day 8. 21 Nov. The Nifty is 7.2% below 8 November. Cash-heavy businesses are struggling, and the headlines predict a slowdown.
  5. Day 33. 26 Dec. The lowest close of the replay: 7,908.25, 7.4% below your start. Held: ₹92,564. The panic-seller is still ahead.
  6. Day 55. 25 Jan 2017. The Nifty closes above its 8 November level again, 22 trading days after the low.
  7. Day 77. 28 Feb 2017. Held: ₹1,03,933, up 3.9%. Panic-sold: ₹97,106 in cash. Holding finished 7.0% ahead. By the end of 2017, the Nifty was 33% above its December 2016 low.

The lesson

Crashes feel endless from the inside, and the urge to sell is strongest near the bottom. Replaying one lets you feel that pressure with virtual money and see how the decision played out. StockSaathi's coach uses the same idea in live trading: before a likely panic-sell it shows how often that stock's past falls recovered, how long that took and which never did, then lets you decide.

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