Demonetization has affected the Indian stock market.  Investors in stock market face two types of risk: systematic and unsystematic risk. The risk faced by investors due to demonetization represents systematic risk spread across the Indian stock market. The effect is experienced by the Indian investors on the changes in stock prices immediately on certain stocks and on the returns in the medium term and long term.  This research paper is an attempt to measure the returns of selected stocks in NSE using Holding Period of Return and CAPM Model in the pre and post demonetization.  The impact of demonetization on stock prices of selected sectors in NSE is studied applying Sharpe’s Single Index Model in portfolio construction with demonetization as key factor. The study uses stock prices of five selected sectors, Information Technology, Real Estate, Automobiles, FMCG and Banking sectors. Five companies from each sector were considered for this study. Sharpe’s Single Index Model was applied for an optimal portfolio construction to analyse the impact of demonetization during the pre and post demonetization period.

KEYWORDS: Demonetization, CAPM Model, Sharpe’s single index model, systematic risk and unsystematic risk, NSE.