In a surprised move just ahead of Brexit referendum, Rajan made it clear on Saturday afternoon that he is not interested for a 2-nd term as RBI Gov.
Though it was not unexpected at all, the timing of the same my be quite unexpected for our market and may jolt the confidence of institutional investors, specially FPIS and there may be massive outflow from the bond market, INR may depreciate quite significantly and ultimately there may be also significant downtrend in the equity market in the near term.
Technically, looking at the chart:
USDINR-I (LTP: 67.17) may rally towards 68.25-69.50 & 70.05-72.80 levels in the near to mid term.
Consequently, NF-I (LTP:8163) may fall towards 8000-7675 & 7525-7295 zone in the near to short term.
Similarly, BNF-I (LTP: 17690) may fall towards 17300-16300 & 15900-15200 in the near to short term.
The political game behind this "untimely Rexit" may be also an indication that Govt is not serious about maintaining integrity & professionalism of an institution like RBI and may be more interested to appoint an "Yes man" as RBI Gov.
There may be debate about Rajan's (RBI) policy, but personal attack and black lashing by SS & Co is not at all desirable. The total game plan may also be an indication that SS is not alone and without active/passive support of higher leaderships of BJP/RSS it was not possible and PM's silence about it may be another point also.
There may be other "suitable" person for RBI Gov post and the same policy may continue, but it will be very difficult for the FPIS to have the same "trust" as on Rajan, at least in the short to medium term.
India may be one of the few stable economies and democratic countries in the world today which offer substantial bond yields (10Y: 7.5% at present) in the age of ZIRP/NIRP. As Rajan is not a believer/supporter of "Helicopter Money" (QQE) and does not believe in the game of competitive currency devaluation, institutional investors/FPIS has tremendous trust on him & INR. So, any significant deviation from the current "hawkish" stance may result in massive sell in the bond markets and subsequent weakening of INR and EQ market sell off too.
Its almost certain that after tomorrow's early gap down opening of Nifty (as par SGX level), there may be massive "buying support"/short covering by some of the institutions on the back drop of "easing of fear" about Brexit as the referendum may be also postponed. As par some reports, there is growing online petition against this vote scheduled on 23-rd June and instead of a public vote (referendum), UK parliament may debate and vote it in due course of time, though it may be too late now.
If that happen (no Brexit referendum), then we may see some relief rally globally and locally also.
Even if Brexit referendum took place (because its now may be too late to postpone it) and "leave" votes outnumbered "remain", after initial whipsaw movement, we may see also some relief rally as UK will not "leave" EU ultimately and any Brexit referendum, will force EU to offer "better package" to UK for "remain" in EU.
After this "Brexit Drama", market will concentrate on other real issues such as Fed stance, BOJ/Yen appreciation and China Yuan devaluation and growing credit bubbles, possibility of another US/EU recession.
Nifty may also found some "buying support" on the perception that "Rexit" may pave the way for more quick rate cuts. But, considering the present inflationary uptrend trajectory and rate differential between USD & INR, any dramatic rate cut may also be counterproductive and may be viewed as Govt is acting in "panic" and this may also help to loose the trust of the FPIS more quick.
At the end of the day, this dramatic "Rexit" may be also an indication that India is not so much changed in its "political game of football" despite massive "marketing initiatives" by the NAMO Govt and this may be one of the reasons for the FPIS, who will be not so much "amused" in the months ahead.
Also, the recent state elections may be also an indication that there is growing influence of the regional political parties rather than the two main central political party (BJP & CONG) and that may be more counterproductive in the years ahead in 2019 election.
There may also be a doubt about BJP/RSS's real intention/seriousness about passage of GST and its actual implementation before 2019 election as some section of the party is not sure about immediate inflationary impact on the economy because of increase in service tax alone and reaction of consumers, MSME and unorganized sectors, which may cast a negative effect on voting pattern in the election.
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