Indian financial markets, including forex and equity, are likely to witness high volatility and deep cuts on Tuesday in view of RBI Governor Urjit Patels resignation and jittery over state election results, analysts on Dalal Street said.
In a shock move, Patel resigned on Monday, citing personal reasons.
Analysts warned that this development would hit the stock market, which is already reeling under poll-related jitters and heavy global selloff.
“The market is on a downtrend. It has already discounted a 3-0 whitewash for the BJP. If even one state goes the BJP way, it will result in short covering. As far as RBI Governors resignation is concerned, it alone has the ability to knock off 200 points from Nifty,” said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
Sharma projected the rupee weaken further against the US dollar.
“Patel's resignation as RBI Governor may create a temporary flutter in the market,” said Ajay Bodke, CEO of Prabhudas Lilladher PMS.
The market will see perception-driven impact on Tuesday, another analyst said requesting anonymity.
In Singapore trading, SGX Nifty was trading some 350 points, or 3.24 per cent, lower at 10,387 at around 8 pm (IST).
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said RBI Governors resignation would be a short-term sentimental negative. “The market is being impacted by the global selloff and domestic political concerns. Once these issues die down, the market will stabilise,” he said.
“When market was getting convinced about the thaw in the relationship between the government and the governor, this sudden bolt from the blue coinciding with election results, which is expected to put the ruling party in a spot, is a sure shot recipe for a gap down opening. Market would now keenly look at the new appointee — in case it's a political crony — it would be taken adversely as it would be an obituary of one of last standing independent regulator,” said independent analyst Ambareesh Baliga.
However, despite Patels shocker and poll-induced volatility, analysts are bullish on the market for the long term.
“This (Patels resignation) is not likely to impact the economy and the market beyond the very short term, provided we get a reputed person as replacement,” said Vijayakumar.
Another Dalal Street expert echoed similar views, saying capital markets need not worry too much, as the outgoing governor was not credited with any path breaking or innovative monetary tools or policies.
Indian stocks on Monday sank, as the possibility of the ruling BJP not measuring up to expectations in the just-concluded state elections did not go down well with investors. Assembly election results will be out tomorrow.
BSE benchmark Sensex crashed 2 per cent, or 714 points, to end at 34,959. NSEs Nifty ended at 10,488, down 205 points, or 1.92 per cent.
Meanwhile, the rupee on Monday slipped to 71.45 against the dollar, its weakest close since November 20.
In global markets, losses snowballed on Monday as fresh signs emerged that the US-China trade spat was taking a deeper toll on global growth, Reuters reported.
Gold held near a five-month peak, as a slide in global shares pushed investors to seek shelter in bullion.