Gold Silver Reports — See Consolidation in Markets Ahead — Stock investors’ hopes of some aggressive monetary policy easing have been dashed following the selection of Urjit Patel as the new RBI governor.
Fund managers said the appointment of Patel, known for his focus on lowering inflation, like Raghuram Rajan, has sent the right signals to the global investment community about policy continuity , but may weigh down on stocks that have run up on hopes of faster rate cuts.
Benchmark indices -Sensex and Nifty -have gained close to 6% since June 18, when Rajan announced he plans to move on. The index for public sector bank stocks, considered the biggest beneficiaries of rate cuts, has gained 17% since then. The Bank Nifty , which consists of both private and state-owned bank stocks, has advanced 9%. The bigger gains have happened in the bond market with yields falling sharply .
“The views (of Patel and Rajan) are very similar. The same policies should continue,“ said Sunil Singhania, CIO-Equity Investments at Reliance Mutual Fund.
Patel was the author of the report that engineered the shift to inflation targeting regime by recommending the 2% to 6% inflation target range.The committee headed by Patel also suggested that interest rate decisions should be taken by a group of members rather than left to the sole discretion of the RBI governor.
“The market will take this as a continuation of monetary policy . Patel was a writer of inflation targeting framework. From equity market point of view it is discounted that RBI will continue to do stellar work and this is why India trades at a premium to Brazil and China,“ said Nilesh Shah, managing director, Kotak Asset Management Rajan’s sooner-than-expected announcement to relinquish his post had not gone down well with global investors and commentators. Many felt the government wanted a new governor who would accede to its demand of lower interest rates. Though the stock and bond markets rallied, questions were raised about the autonomy of the RBI.
Patel’s appointment has alleviated such worries though it may not bode well for the market.
“From equity market point of view, it is discounted that the RBI will continue to do stellar work and this is why India trades at a premium to Brazil and China,“ said Shah.
On Friday, the Nifty ended down 0.1% at 8,666.90 and the Sensex ended 0.2% lower at 28,077. For the week, the Nifty closed flat and the Sensex ended down 0.3%. With uncertainty over the RBI governor’s selection out of the way, the focus will now shift to actions and remarks by central banks in developed countries on interest rates.Emerging markets, including India, have been attracting capital inflows on expectation that the US Federal Reserve will not raise rates soon and due to stimulus measures from global central banks such in Japan and Europe.
US Federal Reserve Chair Janet Yellen’s speech at Kansas City Fed’s monetary policy symposium in Jackson Hole on Friday also will be watched for further cues on timeline of rate hike.
Foreign portfolio investors were net buyers for 29th straight session on Friday , picking up stocks worth `410 crore. Domestic institutional investors were also net buyers of shares worth `106 crore.
“There is lot more money which is interested in coming to markets in India because of the long-term g rowth story,“ said Vikas Khemani, CEO at Edelweiss Securities.
Mihir Vora, CIO, Max Life Insurance said local triggers like the passage of the Goods and Services Tax bill and good progress of monsoon have been discounted to a great extent and one needs to see tangible signs of growth acceleration in India but strong liquidity conditions and trend of lower interest rates will keep sentiment bullish.
“I would thus, expect a consolidation or time correction in the markets in the near future,“ said Vora.