Markets may fall 100 points; great talent leaving us: Experts

Speaking to CNBC-TV18 Nirmal Jain of IIFL said there will be no panic reaction from the market as it would look for cues on who will be coming next. However, he doesn't rule out initial reactions. "If I was an investor, I won’t become bearish on the country because of this [Rajan quitting]."

He said India is a USD 2 trillion economy and markets will look to the government for indications on who will be Rajan's replacement and on whether the government is committed to the reforms Rajan had kickstarted. Ramesh Damani, Member of BSE, said immediate reactions will be on the downside for the market. The week is going to be tough giving Brexit referendum. "The first reaction will be one of disappointment. It will fall maybe 100 points on the get-go," he said, adding that the market is fairly buoyant. 

The market will be disappointed given how Rajan's reforms (in banking) and his inflation-targetting measures have borne fruit.

Damani is quick to add that the market will climb this wall of worry as the economy is strong. Jamal Mecklai of Mecklai Financial said with so many uncertainties around the corner - Brexit - it would have been better to go with a known devil one knows especially when the devil has been doing a good job. "I am very disappointed by Rajan leaving."Mecklai hopes that there won't be a setback in the bank clean-up drive which Rajan had kicked off. Rajan's replacement will have a milliion things to figure out, he said.Mohandas Pai of Manipal Group focussed on the 'malcontents' that have been after Rajan. Pai said Rajan decided to leave because it would have hurt him to see the government did nothing to defend him against the likes of Subramanian Swamy who had ranted against the governor. "Rajan didn't go in for the second term because he wasn't sure the government would rein in malcontents. A great talent has been driven away by malcontents who are bent on maligning him."Below is the verbatim transcript of Nirmal Jain, Ramesh Damani, Jamal Mecklai, TV Mohandas Pai, Keki Mistry and NR Narayana Murthy's  interview with Anuj Singhal, Latha Venkatesh and Shereen Bhan on CNBC-TV18.Shereen: It is now confirmed that there is absolute clarity Raghuram Rajan has decided that he will not continue post his term which ends in September. What is going to be near term impact as far as the stock markets are concerned and also currency markets?Jain: Sure, market will be a bit disappointed for sure because markets are expecting him to continue and in fact he has had a good term of 3 years and many structural reforms are required in longer time period and continuity, but having said that I don’t really see that there will be a panic reaction to this, maybe market will look for cues on who is coming in next and whether there is a person of similar calibre or who can make sure that institution is autonomous and the reform process and the restructuring process for banks that continues, then markets will be okay.Anuj: That point is taken, but considering that market is already dealing with an uncertainty about Brexit due you think this has come at the really worst possible time for stock market and in that sense the reaction to Monday morning might be a bit exaggerated.Jain: Sure, as I said that there can be initial reaction, but supposing if I were an investor I won’t really become bearish on the country because of this.Latha: What about the bond markets because if you remember that the whole bond markets rally that we saw USD 40 billion in 2014-15 and money even thereafter was largely because of the inflation fighting character of the Reserve Bank. Now in any case probably commodity prices have bottomed out globally and we saw about USD 1 billion leaving last month itself, when these rumours started. My fear is more for the bond market and thereby for that currency market and equity market. But if about USD 3-4 billion would leave the bond market and the currency will, you don’t think the Indian stock market will be a little twitter.Jain: India is a USD 2 trillion economy and is a great market for bond as well as equity, so even if there is an initial reaction, market will look for cues on how government is taking this, what are the indications on the replacement and whether the commitment from both government and RBI is there to continue the process of reforms, keeping fiscal deficit under control and also inflation under control. It is a several factor, it is not that only inflation but of course the economy and from government side keeping fiscal deficit under control.Shereen: Your first reaction. We were just talking to Nirmal about how the markets are likely to react to it and obviously there will be disappointment and short term impact, but the larger question of the manner in which this has played out. How is this going to be read?Damani: Of course it is a very moving story and I think you are pulling it correctly it will be an eventful week. We are all worried about Brexit vote and sleep, but now we are going to grapple with Rexit. I think Rajan going out will not be taken well by the market in the first reaction, immediate reaction obviously we will down for the markets. It speaks slowly about independence of our financial and regulatory institution that the RBI governor is such high esteem across the world is basically being shunted out of the government even though in “suo moto” resigned himself so it speak badly and we will start off with a very tough week. Of course what will happen is very early to say what will come down, sooner or later the market will probably latch on that, but I think the first reaction the first cut from the market will be probably be one of big disappointment.Anuj: How much would this disappointment be, maybe 2 percent, 2.5 percent on a Nifty?Damani: It is hard to put a number but I think what you said earlier that you are 100 point down could happen on the get go. The undertone of the market is certainly buoyant. I don’t think the market is going to remain down. I think this week there is an extraordinary set of event to take place, so it will be very volatile, but my sense is that the market will climb. Mr Draghi was a worry or even Brexit vote. The undertone of the market is very good.Shereen: That’s the point if you want to pick up on and we were discussing this amongst ourselves that India so far especially over the last few weeks in comparison to what is happening in the rest of the world with the Fed uncertainty and of course then the Brexit vote, India as being in that sense the island of stability and strength and while this will of course have a near term impact. It also forces people to question then the few things of this government when it comes to institutional reforms that would come to institutional independence and autonomy. How do you believe that is going to play out?Damani: It is a long term negative no doubt about that. Let me give you an example sometime after Obama’s first term, Hilary Clinton resigns and there were some talks in the air about of some dispute between the two and they just put those rumours aside.In the 30 years of career I have in the financial markets and I have been to so many bear markets and so many scandals in India. August 4 2013 the week before Raghuram Rajan came on board of RBI the rupee was completely in a free fall, the Sensex was in a free fall and as Ratan Tata said we are going to become a banana republic. For Raghuram Rajan and some other people who have come in and restored the faith and confidence of international investors is a huge mantle, huge responsibility, so we owed in that respect. So in that sense of course the market will be disappointed.Anuj: The market has been resilient and as you say the bull market climbs wall of worries. Do you this is the one of the big walls which the bull market will be able to climb?Damani: It will. I have no doubt about that Indian economy is doing well. I think we are just praying and hoping for a good monsoon. I think that ultimately has a larger daily impact on Indian lives than we would have in the short run whether it is Brexit or Raghuram Rajan. Raghuram Rajan as Shereen said is the long term impact of us to maintain independent judiciary, independent institutions in this country and that has taken a blow. In the short run my personal feeling is that once the dust clears about that Janet Yellen was unlikely to raise interest rates, Brexit won’t happen it is too close to call right now and Raghuram Rajan the market will resume it upward climb. That I am fairly okay about.Anuj: What about fund flows? Do you think there is a risk of near term outflows just because of the kneejerk reaction and the fact that it will be seen as India negative the way this will be perceived in terms of how our institutions are treated?Damani : Yes, I think there will be some outflow, but at the end of the day fund manager chase opportunities, companies that are doing well, economies that are doing well – ultimately economic reality will prevail unless and until another governor comes in and does something that the market don’t agree with. Market will go through the wall at all the time, but what will happen is a kneejerk reaction. We are into a very volatile week so be careful. But broadly I think I have no reason to believe at this point that a bull market put a breakdown because of these things.Shereen: We were having a conversation a few days ago and you were fairly confident that while there would be some volatility, you believe that the wisdom of the market would prevail and you did not expect a significant chaos to follow even if governor Rajan were to go. Now that it is confirmed that his term will not extend beyond September, how do you see this playing out?Mecklai: I have always been concerned that if Rajan does go, our last chat was when there was all this noise going on and other guests were saying that the government should say something and my point was there is no need for the government to say anything. In terms of what will happen certainly there will be some volatility and nervousness, I am nervous. The reality is that whatever you say, Rajan not only did a good job but he is seen in the market as somebody who has held things together.There is no question there are lot of bright people in the world and lot of bright people in India. Personally I think each one of the governors we have had have been fantastic. However the fact is when you come in at a time like this, a) he is a tough act to follow for whoever it is. I think markets and also there has been this sort of discolouration with Subramanian Swamy and what not carrying on. So, people don't know. Is it actually that the government did not want him to continue and so he said I am going I don't want to be in this environment. Did he genuinely want to leave? I was a little surprised because I would think he would like to ride it out a little bit longer. So, there is a lot of uncertainty. Latha: Do you  think the bigger challenge will be September-October when the FCNR(B) dollars go out and Rajan won't be there?Mecklai: That is as process thing. You would assume he has got a process in place. My point is it is not just a matter of one day, it depends on what is going to be the process of appointment of his successor? How long is it going to be before somebody is appointed. So, I think we are going to see some volatility for some time.We have Brexit coming up who knows whether that will throw another spin ball in. Shereen: We were just talking to Jayesh Mehta at Bank of America on what he expects as far as the first trade on the rupee is concerned, what would your guess be?Mecklai: It would be weaker. If I was a punter I would certainly sell the rupee right now. Whether it is going to be substantially weaker, whether it is going to be sustainably weaker,  I don't think there is any doubt that X amount, it is hard to say whether it is 20 paisa, 50 paisa or Rs 1 or Rs 2 is what I would call the value of Rajan on the rupee. It is not just about the rupee, this is about all the things he was doing. There has been some talk in the press that the push was coming from crony capitalists who were feeling pressured by Rajan but nobody knows what is going to happen. How are all of these things that he has started working on, how are they going to continue to play out? Is there going to be a strong enough person up there to manage all of the above? Institutions are institutions but the reality is everything takes his lead from the head.Shereen: Given the global uncertainty specifically with Brexit, the global slowdown continuing , how important is it for India or would it have been for India to have Rajan at the RBI?Mecklai: I am very disappointed. I wrote an article last week called known unknowns. There are so many uncertainties, a) there is Brexit, b) there is whole thing about global growth, c) there is Donald Trump, you are going through a time when there is lot of likely increasing uncertainty. So, basically you want to have the devil you know, particularly if the devil you know has been doing a good job as compared to the devil you don't know. As I am getting little older , I am getting more conservative but that is the reality.I am very disappointed and I think there is going to be difficult times and this is not just about the rupee, there are so many initiatives he started. He is still here another couple of months but once he has said he is going obviously the kind of strength he has will be less.Shereen: Do you believe that there could be a set back or perhaps at least a temporary derailment of the work that he was doing specially when it comes to the banks cleanup?Mecklai: That is the most significant thing he was doing. I hope there is no derailment. The fact is it is a huge mess, it is a very difficult problem, it would to my mind, it would have taken and will continue to take somebody just sitting on it and not letting go, that is what he was doing. Now a new man coming in he has got a billion things to figure out, is he going to be able to hold on to it as tight as Rajan was? I don't know. I hope so. I am not saying everything is going to fall apart I am just saying it is going to be more difficult. I really wish he had stayed.     Shereen: There has been a lot of chatter on the possible contenders who could be in the race for the RBI governor. Who of the names that have been bandied about some from North Block, some from the world of banking, Arundhati Bhattacharya, of the deputy governor Urjit Patel, where do you draw most comfort?Mecklai: Arundhati would be fantastic. I hadn’t heard any names but that would be really good because she is a great lady, no non-sense and creative.However there is one other point which I just remembered, there is another smaller point of instability that deputy governor H R Khan is also retiring. So, you have the second guy who is in charge in fact of the foreign exchange department who is also going to be new. I haven’t really thought about it but talking through all of this it would seem to me that there was pressure. The fact that there is so much uncertainty known unknowns as I said and of course there are always unknown unknowns coming up, if let's say I were him I would certainly want to tide over a difficult time. There are always uncertainties ahead but this looks pretty difficult. So I don't know whether in fact it was under pressure or not but  there is going to be lots going on.Shereen: I wanted you to read between the lines what Governor Rajan has written in his letter to the employees of the Reserve Bank of India and that’s seems to give us some suggestion as to how this decision is being taken and I am reading that crucial paragraph from that letter, “While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as ends”, so it is very evident and very clear that the events of the past few weeks have weighed on governor’s mind.Pai: Yes, I think so. I think that Dr Rajan was willing to accept the criticism by this malcontent and the crony capitalist whose accounts have been recalled by the banks because he took a tough hard stand, but the fact I didn’t find enough support from the government or maybe the government not defending him adequately must have hurt him and he must have felt that it is not worth a fight, because even if he did the second term there is no control on the set of people who are maligning him and making all kind of false accusations and there is no control on them to have a free reign of whatever they saying and the government doesn’t defend you enough and stand by you and says it is unacceptable, I think he felt it is not worth it. He is keenly disappointed. He is probably looking forward for next two years to complete his tasks and left the country in a much, much better shape and the country he found, but whatever it takes I guess he has taken a decision and it is a very, very sad day for all of us because he is a great talent and being driven away from this country by some malcontents, crony capitalist and by set of people who are bent on maligning him.Shereen: Would you then say you are disappointed in the manner in which this has been handled by the government. A few days ago when Subramanian Swamy decided to issue a charge sheet a 6 point and what he calls the 6 point charge sheet against Governor Rajan. I remember we did a discussion in the studio and a lot of our guest felt that the government should come out strongly and come out in support of Governor Rajan. The government while didn’t get drawn into Swamy’s comments also didn’t come out in support of Governor Rajan. Do you believe that this should have been handled in different way. Are you disappointed in the way in which it was handled?Pai: Yes, I think I am disappointed now because the government consisting of politician does not understand that professionals don’t like getting abused, they cannot take it. The political leaders are used to giving abuse day in and day out by all kind of people including Kejriwal and they don’t seem to mind it. They seem to get along because I think public memory is very short. It is part of the whole thing. Sometime they also abuse the people. I don’t think they understood that Rajan is not a politician. He is a technocrat and technocrat who comes from outside with great sacrifice to serve the motherland and they don’t seem why they should take this abuse, why they should be such strictures of people who belongs to the ruling party.The ruling party have to stand up and have to stop it somewhere. Yes, sometime the finance minister has spoken about it and BJP’s spokesperson has spoken about it, but it is not enough. It is very important that they stop people in the country and the party stand up and assure him that look we don’t think this way. This is a loose cannon and malcontent. Cronies have got together, we think very differently and we wanted to have the courage and to standby something like that and maybe make a public comment. I think prime minister to made a public comment at one point of time, but I wish maybe other people have made public comment because today how will the world see us. The world will see we have driven away a great talent.The world will see that people like Swamy, crony capitalist, people who are defaulters won the day. The world will see that are lobbies that are working to drive away people who take a tough stand to help our banks and the financial system. That’s not what we want the world to know and I don’t think that is the truth. I don’t think Prime Minster, Narendra Modi will be swayed by Swamy or his cronies or crony capitalist. I am sure he will take his own decision. He is a very strong man and he should have made it very clear that these are all opinions of some malcontents in the party, an independent opinion and they are not the opinion of the government. I think yesterday in the TV interview finance minister has said that very clearly, but I think it is not enough. I think the damage has been done.Shereen: How do you see the markets reacting to this news tomorrow morning?