Moneycontrol
Last Updated : Dec 11, 2018 06:05 AM IST | Source: Moneycontrol.com

Urjit Patel's resignation could shave off 150 pts from Nifty; succession plan key

The statement from RBI might not be enough to calm investors and could fuel volatility on Tuesday. Analysts feel that the announcement could impact equity markets and rupee equally.

Kshitij Anand @kshanand

After a rollercoaster ride on Monday when both Sensex and Nifty broke below crucial support levels, market participants thought that they have discounted the worst in terms of the state election outcome.

However, what came after market hours surprised many. Urjit Patel resigned as the Reserve Bank of India (RBI) governor, nine months before his tenure.

"On account of personal reasons, I have decided to step down from my current position effective immediately. It has been my privilege and honor to serve in the RBI in various capacities over the years," Patel said in a statement.

The statement might not be enough to calm investors and could fuel volatility in markets on Tuesday. Analysts feel that it could impact equity market and rupee equally when trading starts on Tuesday.

AK Prabhakar, head of research, IDBI Capital told Moneycontrol that the resignation of Urjit Patel will be negative for D-Street as well as Mint Street. Although, it was speculated long before, and now it has happened which will lead to a weakening of the rupee as well as triple-digit cut of about 150 points on the Nifty.

The S&P BSE Sensex has gone below its crucial psychological support placed at 35,000 while Nifty broke below 10,500 on Monday. If the Nifty fails to hold on to 10,450 on a closing basis on Tuesday, then investors should brace for levels closer to 10,100-10,000 as next support.

Urjit Patel’s resignation as the Reserve Bank of India’s (RBI) Governor may create a temporary flutter in the markets. There is already some level of uncertainty around the results of elections in 3 crucial Hindi Heartland states, suggest experts.

Not just domestic cues, global headwinds like escalating trade war between the US & China, Britain’s Parliamentary vote on Brexit and fears of a slowdown in the global economy in 2019 will keep investors on sidelines.

The timing of Patel's resignation is crucial, say experts. It comes four days ahead of the RBI’s scheduled board meeting on December 14, slated to discuss several contentious issues. Patel has cited “personal reasons”, but it is anybody’s guess why he chose to pull the plug.

Meanwhile, DEA Secretary Subhash Chandra Garg said the government will decide the next RBI governor.

"This is the event that has happened. More important, than post-mortem, is to watch who succeeds. It’s very important at this stage, that government quickly finds a replacement with impeccable and high credentials to ensure continuity and stability,” Nirmal Jain, Chairman, IIFL Group told Moneycontrol.

The governor cited personal reasons but it has come in the backdrop of a strong public disagreement and that would add huge uncertainty in the minds of market participants.

The debate was already going on post-RBI Dy Governor Dr. Viral Acharya talk hinting rift between the government and the central bank. “Patel’s resignation has come just ahead of RBI’s scheduled board meeting on December 14 that is slated to discuss several contentious issues. Now, both government and RBI need to send a positive signal from here on and win back the confidence of market participants,” Shailendra Kumar CIO at Narnolia Financial Advisors told Moneycontrol.

“In the very short term, RBI resignation would certainly add to the already on-going higher volatility in the financial markets. In an immediate reaction, Rupee will fall back in the range of Rs72-73 to a dollar. Bond yield too would be in pressure though falling inflation should restrict spikes to the levels of 7.65-7.75%,” he said.

Ajay Bodke, CEO & Chief Portfolio Manager - PMS at Prabhudas Lilladher Private Limited in a note said that the government needs to urgently appoint an eminent economist preferably one who has decades of administrative experience by virtue of shouldering various senior roles in the government and can adroitly manage the differences with the government and at the same time defend the institution’s autonomy.

The likes of senior civil servants & eminent economists like Manmohan Singh, S Venkitaramanan, Bimal Jalan, YV Reddy, D Subbarao had managed to balance both these seemingly tough choices with aplomb.

Assembly Elections 2018: Read the latest news, views and analysis here
First Published on Dec 11, 2018 06:05 am
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