Key equity indices in Indian markets opened in red on Monday morning, a response viewed as Raghuram Rajan’s announcement that he will not seek a second term as governor of Reserve Bank of India (RBI).
Sensex, the benchmark index of the Bombay Stock Exchange, opened at 26,497.11 points. The 30-scrip index was trading at 26,486.57 points (at 9.16am) in the early session, lower 139.34 points or 0.52% from the previous day’s close at 26,625.91 points..
The wider 51-scrip Nifty of the National Stock Exchange (NSE) was also trading 56.95 points or 0.70% lower at 8,113.25 points.
Rupee nosedived 61 paise against US dollar to 67.69. Bond traders on Sunday predicted the rupee to weaken by 30 paise against the dollar from its current position at 67.08.
The Sensex touched a high of 26,511.89 points and a low of 26,447.88 points in the trade so far.
Rajan, whose current tenure ends on September 4, sent jitters through the industry on Saturday after his decision. The “rock star” central banker is credited with stabilising the rupee and boosting foreign investors’ confidence in India as a viable market.
The upcoming referendum on Britain’s possible exit from the European Union – referred to as Brexit – may further add to worries as foreign institutional investors (FII) might pull out of India by the dozen.
With Rajan’s departure, the continuation of the RBI’s policy, especially in taming inflation and cleaning up massive bad debts held by state-run banks, remains another concern.
“If Rajan’s term is not renewed or the governor decides not to continue, this could affect investor sentiment and lead to volatility in financial markets,” said Deutsche Bank chief economist Taimur Baig.
Credited with bolstering the RBI’s reform work for the currency and reining in the current account deficit, Rajan’s decision to return to academia has spurred many in the industry to back his return.
Experts are also confident that the domestic economy and the RBI have the strength to overcome the initial negative impact.
However, this might put pressure on the Sensex that has been on an upward trajectory but hasn’t received much support from muted industrial growth figures.
The reaction of FIIs will be crucial as they have been the driver behind the India’s bull run in recent years to become the world’s fastest-growing major economy.