This government has fallen to the lure of sycophancy as well. Just look at the ill-qualified people they appointed at the helm of CBFC, FTII and yesterday, NIFT. Given this trend, I won't be surprised if Baba Ramdev becomes the next RBI Governor. It's a situation that's both hilarious and amusing as much as it is sad and pathetic.
General Trading Chat
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So now we all know that Raghuram Rajan is leaving. Now the question remains how the markets will react? As always, there are three scenarios :
Go down.
RR has got inflation down, forced banks to recognize bad loan and clean their balance sheet, stabilized the rupee, shored up reserves and introducted transparency into the banking system etc. But now that RR will go, it would seem that the govt. will replace him by a more pliant governor who will be more open to do what the govt wants. This impacts the credibility of RBI, and the trust in the govt. and hence the move to force RR to quit will do long term harm to the economy. FII's, Wealth funds, Pension funds etc who invest keeping 5-10 years view in mind will not see this move in positive light and in the scenario of being risk off in the turbulent times (Brexit, Fed moves, weakness in EU banks and the global economy, China issues etc) will prefer to sell off, bringing down the market.
Go up
Maybe after a gap down open, the market actually digest the news and looks at the short term consequences. RR is not leaving till Sep, and he will be in helm of affairs for another 3 months atleast. Also, the successor is not known, but considering the respect and stature that RR has, the govt. will try to ensure that the replacement is someone who commands respect not only in the country but internationally. Furthermore, if the govt. gets its wish of having a more accomodating governor, interest rates will soften sooner, which can boost real estate, auto, consumer and capital goods and power and infrastructure stocks. There can be secondary impact of more liberal monetary policy, boosting demands across the sectors. With lower interest rates, companies with huge debt, and stressed balance sheet will benefit in terms of lower financing cost, and more liquidity. Even bank stocks will rally as there will be higher demand for loans. So in the short term, considering RR is not quitting immediately, markets can rally, prompted by 'advise' from the govt to financial institutions such as LIC Housing Finance, Insurance Companies etc. to buy. This move will also be supported by Indian mutual funds, looking to enter markets on knee jerk reaction on news.... The govt. will also play its part making statements supportive of the economy and markets. As while know, markets can do anything, so this scenario cannot be ruled out.
Sideways/Close near to the open.
Expect volatile moves considering both the above scenarios. Since Rexit news came during the weekend after market close, FII's and Wealth Funds would not have had time to consult their principals and office overseas. So they will avoid aggressive moves and wait for more clarity waiting to see how the market reacts and enter later during the day once they absorb the initial market reaction and get view/advise from their office.
So in my view, any three scenarios are possible with varying degree of probability in order they are listed. Though the impression seems to be that we should open gap down. But it is only after seeing the initial market reaction and charts can we enter on either side of the market, as we will have to keep aside our analysis and beliefs and trade as per what price action tells us.....
Go down.
RR has got inflation down, forced banks to recognize bad loan and clean their balance sheet, stabilized the rupee, shored up reserves and introducted transparency into the banking system etc. But now that RR will go, it would seem that the govt. will replace him by a more pliant governor who will be more open to do what the govt wants. This impacts the credibility of RBI, and the trust in the govt. and hence the move to force RR to quit will do long term harm to the economy. FII's, Wealth funds, Pension funds etc who invest keeping 5-10 years view in mind will not see this move in positive light and in the scenario of being risk off in the turbulent times (Brexit, Fed moves, weakness in EU banks and the global economy, China issues etc) will prefer to sell off, bringing down the market.
Go up
Maybe after a gap down open, the market actually digest the news and looks at the short term consequences. RR is not leaving till Sep, and he will be in helm of affairs for another 3 months atleast. Also, the successor is not known, but considering the respect and stature that RR has, the govt. will try to ensure that the replacement is someone who commands respect not only in the country but internationally. Furthermore, if the govt. gets its wish of having a more accomodating governor, interest rates will soften sooner, which can boost real estate, auto, consumer and capital goods and power and infrastructure stocks. There can be secondary impact of more liberal monetary policy, boosting demands across the sectors. With lower interest rates, companies with huge debt, and stressed balance sheet will benefit in terms of lower financing cost, and more liquidity. Even bank stocks will rally as there will be higher demand for loans. So in the short term, considering RR is not quitting immediately, markets can rally, prompted by 'advise' from the govt to financial institutions such as LIC Housing Finance, Insurance Companies etc. to buy. This move will also be supported by Indian mutual funds, looking to enter markets on knee jerk reaction on news.... The govt. will also play its part making statements supportive of the economy and markets. As while know, markets can do anything, so this scenario cannot be ruled out.
Sideways/Close near to the open.
Expect volatile moves considering both the above scenarios. Since Rexit news came during the weekend after market close, FII's and Wealth Funds would not have had time to consult their principals and office overseas. So they will avoid aggressive moves and wait for more clarity waiting to see how the market reacts and enter later during the day once they absorb the initial market reaction and get view/advise from their office.
So in my view, any three scenarios are possible with varying degree of probability in order they are listed. Though the impression seems to be that we should open gap down. But it is only after seeing the initial market reaction and charts can we enter on either side of the market, as we will have to keep aside our analysis and beliefs and trade as per what price action tells us.....
VijKris,
If only it was so simple.... Consequences of actions do follow. Increasing growth rate by reducing borrowing cost, can lead to the dreaded inflation coming back to haunt the govt.... and if the process of reducing interest rates, inflation exceeds growth, raising cost of good and services, the govt. will have no choice but go back, reverse its course increase interest rates again, curtail liquidity which will put the economy in a U turn. Most central banks have primary targets of getting down inflation to their 'target levels', while help ing the economy and employment grow. But as we know, one impacts the other adversely.... there is no easy or short cuts to achieving growth.....
If only it was so simple.... Consequences of actions do follow. Increasing growth rate by reducing borrowing cost, can lead to the dreaded inflation coming back to haunt the govt.... and if the process of reducing interest rates, inflation exceeds growth, raising cost of good and services, the govt. will have no choice but go back, reverse its course increase interest rates again, curtail liquidity which will put the economy in a U turn. Most central banks have primary targets of getting down inflation to their 'target levels', while help ing the economy and employment grow. But as we know, one impacts the other adversely.... there is no easy or short cuts to achieving growth.....
I reread the entire letter after you suggested.
yeah quite possible govt asked him to step down.
"While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed."
yeah quite possible govt asked him to step down.
"While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed."
By saying this, he has put himself on a high moral platform, and the put the ball in the government's court. Now if any government recalls him for any job, he will have a higher hand.
:lol: :lol: :lol:
That's called hitting the nail on the head
Yeah, the government is more enamored of the stastistics than ground reality.
NSE office is also in Mumbai, isn't it ?
https://www.nseindia.com/products/content/gi/gi_contactus.htm
:lol: :lol: :lol:
That's called hitting the nail on the head
Yeah, the government is more enamored of the stastistics than ground reality.
NSE office is also in Mumbai, isn't it ?
https://www.nseindia.com/products/content/gi/gi_contactus.htm
By saying this, he has put himself on a high moral platform, and the put the ball in the government's court. Now if any government recalls him for any job, he will have a higher hand.
:lol:
That's called hitting the nail on the head
Yeah, the government is more enamored of the stastistics than ground reality.
NSE office is also in Mumbai, isn't it ?
https://www.nseindia.com/products/content/gi/gi_contactus.htm
:lol:That's called hitting the nail on the head
Yeah, the government is more enamored of the stastistics than ground reality.
NSE office is also in Mumbai, isn't it ?
https://www.nseindia.com/products/content/gi/gi_contactus.htm
They have a back office in Parliament street new Delhi.
Very good analysis. IMO, Govt will go all out on Monday to see markets don't tank big time. LIC and other similar institutions would be fully geared up to ensure that as it has turned out to be an ego and prestige issue. But, that's not the end of the story and in fact it's the beginning. Much bigger question is what lies ahead in medium to long term with our economy facing so many global headwinds and so much of domestic issues . There is no substitute for merit,competence and professionalism. And a central banker's job is not as easy as 'reading a prepared speech from a teleprompter'. But in our country, merit,competence and professionalism were never given importance and in future also same saga would continue.
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