Gold Silver Reports — Will Markets Dance to Patel Rap Today? — MIXED BAG Dalal Street doesn’t anticipate aggressive policy easing from inflation-warrior Patel, but banks are hoping for a more sympathetic guv
So what does the appointment of Urjit Patel as the next Reserve Bank of India governor portend for the markets, banks, companies, the economy and indeed the country’s place in the whole wide world?
That only time will tell but in the short term at least, some have got their hopes up, others not so much. The stock markets aren’t exactly trembling with anticipation as they don’t expect any aggressive monetary policy easing from Patel, who’s regarded as an inflation warrior in the mould of Raghuram Rajan, the man he will succeed early next month .
But companies laden with debt and bankers saddled with stressed assets may be secretly praying that Patel won’t be as relentless as Rajan in his pursuit of bad loans and cleaning up lenders’ account books. As a result of the RBI asset-quality review, many banks have posted historic losses while corporates have suffered as lines of credit have been cut after their debt has been classified as non-performing. But should debt-ridden promoters start partying again? Probably not. However, the banks are hoping for a more sympathetic regulator.
“Having served as a director of the country’s largest bank State Bank of India for over two years he would draw experience on the constraints under which commercial banks operate,“ said a hopeful bank executive.
Among those definitely cheering are foreign debt investors who have been sitting on the sidelines of the bond market. They are expected to celebrate by jumping in now and pushing bond yields lower over a period of time.
“The appointment of Urjit Patel will send a positive message to overseas investors, who were looking at in lwpuk flation targeting,“ said Jayesh Mehta, country treasurer, Bank of America Merrill Lynch. “Although bond yields may dip for a day or two, over a period of time they will gain confidence on India investment as the new governor is known for his anti-inflation stance, a key trigger for sustainable rate cuts… People would start buying bonds at every yield hike.“
LONGER WAIT FOR HOME, CAR BUYERS
To be sure, India’s interest rate-setting mechanism is about to be overhauled with the establishment of the Monetary Policy Committee, on which Patel will have a casting vote. The committee will function in accordance with the Monetary Policy Framework -a retail inflation target of 4% with a two percentage point margin either way in the next five years. And as Kotak Asset Management Managing Director Nilesh Shah reminds us, this started with the Urjit Patel committee report.
“Patel was a writer of the inflation targeting framework,“ he said. “From the equity market point of view it is discounted RBI will continue to do stellar work and this is why India trades at a premium to Brazil and China.“ — Neal Bhai Reports