Post Rexit, markets surge on back of billion dollar-plus inflows

Moneycontrol BureauA little over a month ago, the Indian market was fretting over the impact of the announcement of popular Reserve Bank chief Raghuram Rajan who announced he would not seek a second term. The announcement took most by surprise, thanks to Rajan's formidable reputation as an economist and his pied piper-like following in financial circles, even though it had come amidst a high-decibel campaign by some seeking his ouster.During the buildup, some analysts had even warned that were Rajan not given an extension, it would lead to a crack in markets, and may even trigger outflows of foreign capital by the billions.But as it happened, the reality turned out to be the opposite.A note by Centrum Wealth Research points out that following a kneejerk reaction, benchmark indices Sensex and Nifty have gained close to 4 percent each since Rajan’s June 18 announcement.It must be added that partly the reason why markets were easily able to shrug off the much-feared 'Rexit' event has been because of a global rally that has lifted share prices across.

In the note, Centrum also says that any repercussion of Rajan's exit, if any, on the overall economy is likely to be visible only in the longer. But, the immediate impact on key indexes that appeared most prone seems limited.

There was also a view that more than the equity markets -- which draw cues from a number of other factors such as earnings -- the worse hit would be currency and bond markets, where monetary-policy developments have an impact.“Here again, data suggests that Rajan’s exit was not a big dent. Rajan was lauded for his efforts to reduce the extreme volatility in rupee. But, the forex market showed a very mature reaction to the exit,” the note says. The rupee, in fact, has appreciated since the announcement.

A similar trend is seen in the 10-year bond yields which have moved down sharply from 7.5 percent on June 20 to about 7.25 percent now.

One of the big setbacks expected from Rajan’s exit was in terms of foreign fund sentiment towards India, thanks to his popularity with FIIs. However, here too, they have so far taken the announcement in their stride.

Since June 20, net foreign fund inflow in equity has been roughly around Rs 7,863 crore while in debt it has been close to Rs 1,966 crore.  

“In fact, FII investments in government securities, which went through a slowdown in the first few days after Rajan’s exit announcement, also stabilised in July,” Centrum analysts write.So far since June 20, FII investment in G-secs has been roughly about Rs 2,768 crore.