Raghuram Rajan’s exit likely to trigger a panic sale

The markets are expected to have a gap down opening with RBI governor Raghuram Rajan deciding to go back to academia but could rally later on, as there would be a good buying opportunity.

The markets had closed positive on Friday with the Sensex up over 100 points and the Nifty over 29 points.

Markets are all about sentiment, said Dhana-njay Sinha of Kotak Institutional Equity Research. “The impact will be felt over a period of time not just one day. We have the $22 billion redemption of FCNR(B) starting September; inflation is inching up and if this trajectory continues on the higher side it will be a matter of concern,” said Mr Sinha.

With Dr Rajan’s exit, the aggressive cleansing of the bank balance sheets that he has started could be clouded, he said.

Also given Dr Rajan’s global stature his exit following the acerbic comments of Dr Subra-maniam Swamy, could cause concern as to whether people with credibility and independence will be curbed, said Mr Sinha.

In its report released before Dr Rajan’s exit announcement on Saturday, Deutsche Bank termed his exit as additional risk for the Indian economy. “If Dr Rajan’s term is not renewed or the Governor himself decides not to continue, this could affect investor sentiments and lead to volatility in financial markets,” the report noted.

The markets had time to digest the news since Dr Rajan made the anno-uncement on a Saturday when markets close for the weekend.

It had taken everyone by surprise though it was not unexpected considering the cautious utterances on the part of finance minister Arun Jaitley, said another analyst.

“Whilst markets will see a negative opening, maybe a double digit fall for the Nifty, it will also be seen as a buying opportunity,” says market analyst Ambareesh Baliga.

Markets will also wait for the government to come up with names of the next incumbent, mainly whether the person will be someone who will toe the government’s line,” Mr Baliga said.

The other trigger for the markets would be the exit of Britain from the European Union.