Nirmal Bang writes …Resignation Of Urjit Patel is Short Term Negative For Markets
The resignation of Dr. Urjit Patel does not bode well for equity, bond and forex markets.
Markets will remain under pressure with both political and regulatory uncertainty in the near term. However, what will be closely watched is nature of appointment of the new Governor, and the ideology that the new appointee will bring to the table, and whether or not continuity will be ensured.
In our view, while there may be temporary disruptions, we do see significant risk to the functioning and credibility of the central bank. The government is also increasingly likely to take cognisance of the risks of undermining institutions or even any such perception.
With significant impending uncertainty, foreign investors are likely to take a back seat, which implies that the INR is likely to continue to trade with a depreciation bias for the rest of FY19.
My two cents
This tension between RBI and Govt is an outcome of Inflation targeting and RBI tackling Banking NPA problems with urgency. A more pliant new RBI Governor will mostly be generous on LIQUIDITY and postponing financial sector reforms which was a bane to crony capitalism. That means good old days of getting competitiveness through currency depreciation might be back.
I think (depending upon the leaning of new governor which I am assuming to be more dovish) we will see
Depreciating Rupee
Steepened yield curve
Bottoming in real estate prices purely to hedge value of money
Equity as an asset class is more dependent upon global glows and Global flows will be vary of investing in India at least for some time.