Indian equity markets are likely to open higher today on the news of Urjit Patel, currently deputy governor at Reserve Bank of India (RBI), being appointed as the new RBI Governor.
“Institutional Investors both domestic and foreign would welcome the Indian government's appointment of RBI Deputy Governor Dr Urjit Patel as successor to Dr Raghuram Rajan. It signals a seamless continuity in the policies pursued by the RBI to conduct its monetary policy in an independent manner. Markets would strongly cheer the appointment,” said Ajay Bodke, CEO & Chief Portfolio Manager - PMS, Prabhudas Lilladher.
Markets hate uncertainty and sudden change in policies. Thus continuity of policies, thoughts and ideology has come as the biggest relief for domestic as well foreign institutional investors.
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company had a similar view. “Dr. Urjit Patel's appointment provides continuity to the monetary policy making especially related to inflation targeting. It reassures both debt and equity market for continuity in policy making at the RBI,” he said.
Patel’s appointment also sends a strong signal that government is also serious about its fight against inflation, wants to achieve a sustainably higher economic growth and most of all wants RBI to operate as an independent organisation. “If government was not happy with Rajan, it would not have appointed Urjit Patel as the governor. His appointment shows that government appreciates what Rajan has done,” said Abhinesh Vijayraj banking analyst at Spark Capital.
Motilal Oswal Financial Services expects markets to respond positively to the news as the government increases its credibility to maintain its fight against inflation. Nifty 50 had gained about 3 per cent when Raghuram Rajan took over as RBI governor on September 5, 2013.
Like Rajan, Patel also comes with a strong academic background and work as an economist. He has been the mind behind the monetary policy committee, CPI-based inflation to be set as a benchmark for interest rates, keeping inflation target of 4 per cent(+/-2 per cent) and banking sector reforms. His appointment comes at an opportune time as there are upside risks to inflation due to Seventh Pay commission hikes and concerns over weakening or progress of monsoons.
The India Meteorological Department in its weekly monsoon update issued on 18 August 2016 said that for the country as a whole, cumulative rainfall during this year's monsoon season so far from 1 June to 17 August was normal with 0 per cent departure from the long period average (LPA) compared to 7 per cent above LPA in the month of July. For the entire season (June to September), rainfall over the country as a whole is likely to be 106 per cent with a model error of ±4 per cent of LPA.