Mumbai: Markets regulator Sebi and stock exchanges have beefed up their surveillance and risk management mechanism to ring-fence capital markets from any excessive volatility on Monday on account of RBI governor Raghuram Rajan’s surprise decision against a second term.
Banks and forex dealers are also gearing up to meet any excessive money demand, especially for the dollar, on concerns that Dr Rajan’s eventual exit this Sept-ember could trigger capital outflows amid jitters among foreign investors.
Officials said the financial market regulators, including RBI itself, were already bracing up for volatile trends ahead of the Brexit referendum this week, but Dr Rajan’s sudden announcement over the weekend has added to the worry.
“Only respite is Dr Rajan chose a Saturday to make the announcement as any such development on a weekday could have been much more serious,” they said. Analysts, however, expect the stock markets are expected to have a gap down opening but could rally later on, as there would be a good buying opportunity. “Markets are all about sentiment,” said Dhananjay Sinha of Kotak Institutional Equity Research. “The impact will be felt over a period of time not just one day. We have the $22 billion redemption of FCNR(B) starting September; inflation is inching up and if this trajectory continues on the higher side it will be a matter of concern,” said Mr Sinha.
With Dr Rajan’s exit, the aggressive cleansing of the bank balance sheets that he has started could be clouded, he said. Apart from this, bond and currency markets also could get impacted on Monday.
Also given Dr Rajan’s global stature his exit following the acerbic comments of Dr Subramaniam Swamy, could cause concern as to whether people with credibility and independence will be curbed, said Mr Sinha.
“Whilst markets will see a negative opening, maybe a double digit fall for the Nifty, it will also be seen as a buying oppo-rtunity,” says market analyst Ambareesh Baliga.
“Markets will also wait for the government to come up with names of the next incumbent, mainly whether the person will be someone who will toe the government’s line,” Mr Baliga said....