The BSE Sensex ended at 26,866.9 points, higher 0.91% on Monday after opinion polls for Britain’s exit (Brexit) suggested Britain would remain in the European Union and also easier foreign direct investment (FDI) measures announced. Investors sentiment appeared not have been dented by the central bank Governor Raghuram Rajan’s impending departure.
Most aviation and defence stocks including InterGlobe Aviation, Jet Airways, Bharat Forge rallied between 3% to 7% as the government eased FDI norms.
On Saturday, the Reserve Bank of India (RBI) governor Raghuram Rajan informed the RBI staff that he would not seek a second term as governor and will be returning to academics. The markets experienced a knee-jerk reaction during morning trade as the Sensex dived 150 points. The governor’s term ends on September 4.
According to Kotak Institutional Equities, the governor’s decision to not seek a second term will likely unsettle investors sanguine about India. “Most foreign portfolio investors (FPIs) view India as a preferred and stable market in an uncertain world given the powerful appeal of its macro-economic stability, ongoing economic and social reforms and long-term growth prospects. They will now have to grapple with India’s ‘Rexit’ and a possible ‘Brexit’ in the next few days.”
The Indian market currently trades at 18.2 times its FY17 forward earnings per share (EPS) and analysts at Kotak expect a 16.5% growth in FY17 for the Nifty-50 Index’s net profits. Many emerging market (EM) investors believed that they could leave the India portion of their EM portfolios on auto pilot. They will now have to navigate through the implications of one exit for sure and perhaps two in the next week, the brokerage said in a report.
Bank of America Merryill Lynch observed the baton usually passes smoothly at the RBI. “Markets typically move on if the successor proves himself, as is mostly the case. Former Governor Rangarajan broke the back of money-driven inflation while Governor Jalan successfully combatted the 1998 Asian crisis and nursed a solid recovery through 9/11 and the dotcom bust. Ex-governor Reddy stockpiled foreign exchange reserves to shield the economy from the 2008 global financial crisis”, the brokerage pointed out in a report.
Foreign funds were net sellers in equities as they sold equities worth `385.6 crore on Monday, while domestic investors brought equities worth `724 crore, as per provisional stock exchange data. Most Information Technology (IT), telecom and auto stocks including — Zen Technologies, Infosys, Tata Motors, Reliance Communication gained between 2.5%-8% pulling up the benchmark indices during the day’s trade.