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Business News/ Market / Stock-market-news/  Markets surge on hope of a more liberal policy stance from RBI’s Das
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Markets surge on hope of a more liberal policy stance from RBI’s Das

Markets believe that Urjit Patel's exit as RBI governor could lead to a relaxation in the banking sector

Photo: Abhijit Bhatlekar/MintPremium
Photo: Abhijit Bhatlekar/Mint

Benchmark stock indices closed nearly 2% up on Wednesday as investors expected a more dovish monetary policy from newly-appointed Reserve Bank of India (RBI) governor Shaktikanta Das.

The Sensex closed at 35,779.07, up 629.06 points, or 1.79%, while the 50-share Nifty ended at 10,737.60, up 188.45 points, or 1.79%. Global stocks ended higher, following news reports indicating easing of tensions between the US and China.

According to analysts, markets believe Urjit Patel’s exit as RBI governor could lead to a relaxation in the banking sector and liberal monetary policies, besides the possibility of a rate cut in the second half of 2019.

“We believe Das stands in the neutral-to-slightly dovish spectrum on monetary policy. The MPC structure will ensure policy continuity, but since Das replaces a more hawkish Patel, the MPC’s composition, at the margin, will become relatively less hawkish, especially given that the governor casts a second vote in case of a tie" said Nomura Research in a 12 December note.

Meanwhile, the 10-year bond yield fell as much as 11 basis points to hit a fresh eight-month low, closing at 7.411% from its previous close of 7.528%. The rupee ended at 72.02 to a dollar, down 0.21% from its previous close of 71.87. Bond yields and prices move in opposite directions.

According to UBS Securities Ltd, the central government’s policies may turn more populist after the state election results.

UBS Securities also believes Das may be able to handle the working relationship between RBI and the government better. “Considering the monetary policy is decided by MPC, we would expect policy continuity. His views on surplus reserves and the role of RBI board merit tracking," analyst Gautam Chhaochharia and economist Tanvee Gupta Jain, UBS Securities India, said in a note on 12 December.

According to Morgan Stanley, odds are in favour of equities.

Equity strategists Ridham Desai and Sheela Rathi said in a report on 12 December that sentiment is more likely to improve from post-crisis lows. “The political cycle (measured as policy certainty) is likely to turn down, growth is likely to move higher, credit growth seems to be at the beginning of a new cycle, terms of trade are improving, rates are probably taking a brief pause before continuing to head higher, profit margins appear to be at the start of a new up cycle, valuations are bang in the middle of the historical range and could go either way depending on other factors."

However, brokerage firm CLSA was cautious on domestic inflows, and said that markets may be impacted as state election results will likely increase the fears of an unstable government among retail investors. “Our analysis of state election manifestos highlights competitive populism by the BJP and the Congress with farm loan waivers, unemployment grants and farmer handouts. This is good for consumption, but bad for a capex cycle recovery."

This year, domestic liquidity has been robust, supporting the markets in absence of significant foreign inflows. According to Bloomberg, domestic institutional investors (DIIs), including mutual funds and insurance companies, have bought Indian shares worth 1.10 trillion while foreign institutional investors (FIIs) were net sellers of Indian equities amounting to $4.46 billion.

The 10-year bond yield fell as much as 11 basis points to hit a fresh eight-month low, closing at 7.411% from its previous close of 7.528%. The rupee ended at 72.02 to a dollar, down 0.21% from its previous close of 71.87. Bond yields and prices move in opposite directions.

Technical analysts said the chart indicates that the markets uptrend will continue. Sahaj Agrawal, deputy vice president– derivatives, Kotak Securities Ltd, said: “As we entered December series, we did expect some weakness in the market as roll-over was on lower side. There was some short-term breakdown because of which there was some pressure on the Nifty. The known big events have played out and now the markets have got back on track, which shows a long-term positive trend. We have been maintaining a positional positive stance with some-term volatility. The medium and long-term chart shows positive trends."

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Published: 13 Dec 2018, 10:57 AM IST
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