Thumbs up: Sensex soars as change at RBI helm raises rate cut hopes

By: | Published: December 13, 2018 5:32 AM

Those who withheld buying due to uncertainty now back in game. Going by volumes in individual stocks, some FII nibbling is happening.

sensex, rbiThe benchmark 10-year bond yield ended at the session low of 7.41%, down 12 basis points on the day.

Stocks and bonds closed higher on Wednesday after the government moved quickly to calm markets and appoint a new central bank governor.

The rupee weakened slightly, however, in response to a sharp rise in global crude oil prices which threatens to aggravate India’s current account deficit. The BSE Sensex surged 629.06 points, or 1.79%, to end at 35,779.07 points, while the broader NSE Nifty rallied 188.45 points, or 1.79%, to close the session at 10,737.60 points.

The benchmark 10-year bond yield ended at the session low of 7.41%, down 12 basis points on the day.

The rupee closed at 72.01 per dollar compared with its previous close of 71.84, after initially dropping to a low of 72.20 at the open tracking oil prices.

“The appointment of the new governor is likely to calm investors and ease any uncertainty about the next head of the central bank,” economists at HDFC Bank wrote in a note.

Some market participants said rate cut bets have increased following the appointment of Das, with some expecting a cut in interest rates as early as April.

Meanwhile, retail inflation plunged to a 17-month low in November at 2.33%, mainly on account of a decline in prices of kitchen essentials like vegetables, eggs and pulses.

“The negativity from Urjit Patel’s abrupt resignation has been offset by the speedy appointment of a new governor,” said Deepak Jasani, head of retail research at HDFC Securities, adding that people were now looking forward to less friction between the RBI and the government.

“Those who withheld buying because of uncertainty are now back in the game. Going by the volumes in individual stocks, there is some FII (foreign institutional investor) nibbling happening.”

Traders and analysts broadly expect the central bank’s monetary policy stance to gradually shift towards neutral as inflation readings have been subdued in recent months.

RBI watchers said they expected the 61-year-old Das to put relations between the RBI and the finance ministry on a more stable footing.

Das retired last year as secretary of the department of economic affairs, having previously served on the RBI’s board.

He was a strong advocate of slashing rates during his tenure, said Sue Trinh at RBC Capital Markets in Hong Kong.

But investors are watching closely to see how he holds up against outside influences after recent efforts by the government to gain greater control over the central bank’s regulatory powers, raising concern over its independence.

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