Indian markets recovered from sharp early losses on Tuesday as vote count in three states were not as poor for the ruling party as some expected, but anxiety about the central bank governor’s resignation kept sentiment fragile.
Markets initially plunged in reaction to Reserve Bank of India (RBI) governor Urjit Patel’s unexpected resignation on Monday, which shocked many investors.
The ruling Bhartiya Janata Party (BJP) could lose power in three key states, four TV networks said on Tuesday, citing vote count leads, potentially handing Prime Minister Narendra Modi his biggest defeat since he took office in 2014, and months ahead of a general election.
Here is what the experts say:
Mahendra Kumar Jajoo, head of fixed income, Mirae Global Asset Management, Mumbai
“The market is a bit disappointed over the elections and the RBI governor’s resignation.
“However, I think the resignation is something that the market has taken in its stride because the core issue was that the interest rates were getting too high and there was no urgency to address that. The collateral benefit is that the new governor may act on reducing the interest rate and that could be something of a relief for the bond market.
“As far as election results are concerned, I think economic fundamentals will remain, and if the fundamentals are good then the markets will eventually begin to price in the fact that the new government will also continue to focus on development.”
Samrat Dasgupta, CEO, Esquire Capital Investment Advisors, Mumbai
“We have witnessed that markets have already corrected in the past five days. So, a lot of the negative news were already priced in and the market valuations are also not expensive. So, I see very limited downside from here.
“The market had corrected on Monday based on the exit polls and the results that have come out are more or less in line with the exit polls, so the reaction on Tuesday is not as negative as people were expecting.
“The governor’s exit was a shocker due to which rupee and bond yields moved. However, I think once a new governor is appointed and if it is a well-known figure, then I think people will look ahead to what is happening, and this issue will be out of the way. There is a good chance that the new governor will be more dovish than the previous one.”
S Krishnakumar, CIO, Equity, Sundaram Asset Management, Chennai
“Uncertainty from the state elections seems to be behind us now. It seems like BJP has garnered better-than-expected results in Rajasthan, and Madhya Pradesh looks like a close contest.
“If it had been a whitewash, with high margins of defeat for the BJP, then markets would have been under more pressure.
“Going forward, any measures by the government to help sentiment and growth, such as a rate cut on the GST, will be positively viewed by the markets.”
Neeraj Dewan, director, Quantum Securities, New Delhi
“The markets had priced in on Monday that the ruling government will lose in Rajasthan and Chhattisgarh, and it will be a tough fight in Madhya Pradesh. That is what is coming through on Tuesday.
“Surprisingly, financials and PSU banks have recovered with the hope that recommendations which are being held back because of the outgoing governor will be put into action if the government has a bigger say.
“Earlier there were talks about some banks coming out of PCA (prompt corrective action), some liquidity enhancement for NBFC (non-banking financial companies). I think these factors are being priced in by the market as something positive may happen.”
Anita Gandhi, whole time director, Arihant Capital Markets, Mumbai
“After the exit polls, markets were having disappointing views, but the results seem to be better than what was expected and markets are factoring that in. People were worried about news from the RBI, but they are taking the election results positively.”
Saurabh Jain, assistant vice-president — research, SMC Global Securities, Delhi
“The morning reaction was largely due of Urjit Patel’s resignation. However, now the market is recovering as BJP’s potential defeat in the state elections could mean that ahead of the 2019 general elections, they will have to pull up their socks and do massive spending in the rural side to garner more votes.”
Sunil Sharma, chief investment officer, Sanctum Wealth Management, New Delhi
“One of the most critical decisions investors make is to stay the course. The data over the past two decades clearly suggests that markets track fundamentals and earnings, and can deliver strong returns across political regimes.
“Tuesday’s reaction by the markets is surprising to some, but it’s a classic ‘buy the rumour, sell the news’ reaction. The news is already in the market price.
“The other factor investors must consider is the alternatives to investment. There are limited liquid investment alternatives that can deliver high teens returns over a longer period of time.
“Governments in Europe and the United States have had strong criticisms and inputs into their central bank policy. India is no different in that regard, and the government pushing for pro-growth policy choices is along the same lines as we are witnessing in advanced economies.”
Siddhartha Khemka, head of retail research at Motilal Oswal Securities, Mumbai
“The RBI governor’s departure was a bigger concern for us. Mostly, the results look like it will be in line with the exit polls and markets had fallen quite a bit on Monday factoring in the possible election outcome.
“The market today seemed to be mainly driven by the election outcome and has kept the governor issue aside. Our expectation was that by the time election results come in, whatever be the outcome, the market should see some pullback as the next elections are only after sixth months.”
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Updated Date: Dec 11, 2018 17:45:06 IST