Dalal Street expects lower opening of sensex following Rajan's decision

MUMBAI: Dalal Street investors are readying for a lower opening of the sensex on Monday as a knee-jerk reaction to RBI governor Raghuram Rajan’s decision to not continue in his post after his term ends early September. However, the main concern for the Street is the rupee, and not bonds or stocks, market players said.
The negative sentiment from Rajan’s exit is expected to be aggravated by the already volatile global market which is currently weighed down by the Brexit next week.And on the domestic front, the delay in monsoon rains and also the ensuing maturity of foreign currency deposits worth about $20 billion are also expected to weigh on investor sentiment, they said.
“The announcement came at the worst possible time for India. On one hand, we have the Brexit next week, the rains are yet to come and the global and domestic markets are volatile now,” said Dharmesh Mehta, MD, Axis Capital.
During the trading week of June 13 to June 17, despite substantial volatility, the week’s closing level for sensex at 26,626 was just 10 points lower from its previous weekly close. This was due to various positive and negative factors which impacted the market. In the coming week too, market players see the trend continuing.
Institutional dealers said that foreign investors, largely, will be disappointed to see Rajan go. And this could lead to some selling early on Monday. However, going forward they would be closely watching at the direction of the monetary and banking policies. “Investors will be looking at continuity of the policies which have improved India’s macro-economic stability (in the last few years). RBI’s focus on bringing down inflation has given a lot of confidence to investors,” said Nilesh Shah, MD, Kotak Mutual Fund. “They’ll be looking at an independent RBI continuing the same policies,” Shah said.
According to Arun Kejriwal, director, KRIS, an investment advisory firm, there will always be a knee-jerk reaction to such a statement.
According to a former head of institutional dealing at a foreign brokerage, FIIs definitely had high regards for Rajan and his policies, and also the way he went about cleaning the country’s ‘tricky’ banking system, there could be some selling by foreign fund managers. However, they would look at the rupee first before taking any decisions, the ex-head said.
Investors are also waiting for the government’s announcement on Rajan’s replacement at RBI. “An early announcement about Rajan’s successor will certainly be helpful to the market,” Shah of Kotak MF said.