Raghuram Rajan, Governor of Reserve Bank of India, on June 18 said no to second term for his post, in a "surprise" announcement putting all speculation over his continuance at rest.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Rajan said he will return to academia when his current term ends on September 4, he said in a letter to central bank staff.

Rajan made his announcement over the weekend. As expected, the Indian equity markets were set to open in red on the Monday, June 20. That day, the 30-share benchmark Sensex slumped 139.34 points during the early morning session. While, Nifty of National Stock Exchange plunged 57 points. 

Many reports said that the country could not afford exit of Rajan. Infact, Former Finance Secretary Arvind Mayaram had posted on Twitter, "Raghuram Rajan's decision not to seek second term would be very costly for the economy. Not a good omen."

But, does Rajan's exit had any impact on equity markets as expected?

Where the researchers were saying that "Rexit" will have a major impact on equity market, an interesting report by Centrum titled "India-Changes post Rexit" has come out.

The report said that in one month, when on June 20, the Sensex was at 26867 has touched 27803 on July 22, a gain of 3.48%.

The similar jump was seen in Nifty too. The 50-scrip benchmark which was trading at 8239 on June 20 surged to 8541 on July 22.

 

Infact, in the banking sector, BSE Bank Index, which was 20285 on June 20 touched 21377 mark, gaining 5% in one month. 

 

 

"Rajan was lauded for his efforts to reduce the extreme volatility in rupee. But, the forex market showed a very mature reaction to the exit. So, rupee which was at 67.32/$ on June 20, 2016 is currently at ~67/$", the report said.

 

Further, the report said, that the 10-year yields have moved down sharply from 7.50% on June 20, 2016 to the current 7.25%. 

"Raghuram Rajan was extremely popular in the FII community. There were talks of big FII outflows if he were to exit. But, numbers suggest otherwise". The number shows that post Rexit announcement, Rs 7863 crore was invested by FIIs in the equity market and Rs 1966 crore has been infused in debt market since then.

Moreover, FII investors put in Rs 2768 crore in government securities since June 20-July 22. "FII investments in government securities, which went through a slowdown in the first few days after Rajan’s exit announcement, also stabilised in July’16".

Lastly, the report mentioned that though one-month is too short period to jump to conclusion, but at the same time it will be "amateurish" to assume that any single factor can significantly affect country's fortunes.