In a letter
to staff, Raghuram Rajan has ruled out a second term, ending
speculation over his continuing as RBI governor when his term ends in
September. This is bound to shake market sentiment when it opens on Monday.
Indian markets were volatile
throughout this week within a broad range. Worries over Britain’s exit from the European Union in next week’s referendum, dismal CPI
and WPI inflation data back home and reports of weak initial monsoon rains
dented sentiments.
The
Nifty hovered around the 8,100 mark the entire week before closing nearly flat
at 8,170. Crude oil prices bounced back on Friday after falling for six
straight days to close near $48 a barrel. FIIs were net buyers to the tune of
$44.36 million.
The
week was dominated by headlines related to the UK referendum and central bank
inaction as the U.S. Federal Reserve, Bank of Japan and Bank of England decided
to keep rates unchanged. The dollar weakened against the yen mainly due to
safe-haven buying in yen.
Back
home, expectations of a sooner-than-expected implementation of the Goods and
Services Tax (GST) helped indexes bounce back despite global chaos on Brexit
fears. Despite near-term volatility, the bill is a long-term positive for
various companies and will be a landmark reform in the Indian tax system.
Data showed India’s current account deficit narrowed in the last fiscal year. This is
positive as a trade surplus is now within reach. However, Brexit risk and crude
oil prices could weigh on the overall balance-of-payment surplus. On the inflation
data front, WPI rose 0.79 percent in May, after rising 0.34 percent in April.
It could be challenging to meet the RBI inflation target of 5 percent by March
2017 with risks emanating from monsoon uncertainty and implementation of the
Seventh Pay Commission.
Shares
of PSU banks were in the limelight after the RBI came out with a scheme for
resolution of bad loans of
large projects. Automobile
stocks were in focus after automakers approached the government to aggressively
pursue FTAs with nations in Africa, Latin America and ASEAN region that do not
have strong manufacturing base. Airline stocks were also watched after the
Cabinet cleared the new civil aviation policy, which provides incentives to
airlines for flying to smaller cities and towns.
The coming week will be
action-packed as all eyes will be on the EU referendum on Brexit. Investors
will also closely watch the progress of monsoon rains. Any disappointment on
this front will take the markets lower. A lot of stocks thought to be benefiting
from a good monsoon have seen a sharp rally in the past month. Some
profit-taking is not ruled out considering the uncertainty regarding the
monsoon.
Raghuram Rajan’s exit along
with the Brexit referendum will keep Indian markets on edge. A break below 8,000
on the Nifty could be a short-lived one and would be an opportunity to buy.
The Brexit outcome may not
have much of a shelf life for Indian markets and would be digested within a
week or two. But all eyes would be on the next RBI governor’s appointment –
that would be a litmus test for the Narendra Modi government. In light of these
important developments, it’s advisable to stay on the sidelines of the market
but utilise sharp cracks to invest afresh.
Representative
Image
Source:
Reuters
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