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Indian equities, rupee in free fall on another ‘Manic Monday’

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Mumbai: Another “Manic Monday” saw a key Indian equity index log its steepest ever closing fall in point-terms, spooked by a crash in Chinese bourses, unmindful of the assertions by policymakers that the turbulence was transient and the country’s economy remained strong. In this turmoil, the Indian rupee also fell to its lowest in two years at 66.74 to a dollar. The sensitive index (Sensex) of the Bombay Stock Exchange (BSE) lost as much as 1,624.51 points, or 5.94 percent which was the steepest in terms of points, surpassing the previous highest closing loss of 1,408.35 points on Jan 21, 2008. In terms of percentage, the loss of nearly 6 percent on Monday was around a half of the steepest fall of 11.13 percent in the Sensex, which was logged on May 17, 2004, data available with the Mumbai bourse showed. In fact, all these were Mondays.

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The wider, 50-scrip Nifty of the National Stock Exchange (NSE) followed a similar trend to close 491 points, or 5.92 percent, down at 7,809 points. In both bourses as much as Rs.7 lakh crore ($100 billion) was wiped out in terms of market cap. At BSE, out of 2,835 companies that traded on Monday, 2,477 of them declined. Just 303 managed to stay afloat. In terms of Sensex, all the 30 shares that go into the bellwether’s basket ended in the red.
So massive was the crash that top policymakers, led by Finance Minister Arun Jaitley and Reserve Bank of India (RBI) Governor Raghuram Rajan sought to talk the market up, by saying the the core fundamentals of the Indian economy were strong and the turmoil will tide over. “Factors responsible for the markets fall are entirely external. There isn’t a single domestic factor,” said Finance Minister Arun Jaitley at a conference here. “The turbulence is transient and temporary in nature. Markets will settle down once the turbulence is over.” Rajan spoke a similar language and also tried to calm the currency market vis-a-vis the rupee. “I’ll say that relative to other countries India is in a good position with strengthening growth, a low current account deficit and narrowing fiscal deficit, moderating inflation, low short-term foreign currency liabilities and sizeable exchange reserves,” he said.

Analysts said weak global cues emanating from a continuous slide in the Chinese markets, along with concerns over the stalled domestic economic reforms program were the main reasons for Monday’s mayhem. “International investors are pulling-back funds from emerging markets especially China. There is a slowdown there. The clear and present danger now is the slowdown impacting the US and European based companies,” Anand James, co-head, technical research, Geojit BNP Paribas. A look at the sector-wise indices showed how widespread the losses were in the Indian markets. All the 12 sub-indices of the BSE closed deep in the red. Banking, auto, healthcare, capital goods particularly came in for hammering.

The losers on Monday were led by Amtek Auto, down 25.19 percent at Rs.48, followed by Wockhardt, down 21.26 percent at Rs.1,301.75, Vakrangee, down 20 percent at Rs.100, BF Utilities, down 19.44 percent at Rs.476.80 and HDIL, down 18.99 percent at Rs.58.65. Major Sensex losers were: Vedanta, down 15.30 percent at Rs.80.25, Tata Steel, down 13.11 percent at Rs.206.15, Gail India, down 12.78 percent at Rs.271.90, ONGC, down 11.17 percent at Rs.227.35, and Bajaj Auto, down 9.09 percent at Rs.2,188.45. Elsewhere around the globe, Chinese stocks crashed pulling down the benchmark Shanghai Composite Index 8.45 percent to close at 3,211.2 points. The Shenzhen Component Index also shed 7.27 percent to end at 10,983.42 points. The Hong Kong stocks also dived for the 7th consecutive trading session on Monday. The benchmark Hang Seng Index dropped 1,158.05 points, or 5.17 percent, to close at 21,251.57 points. It traded between 21,136.48 and 21,679.45. The massive fall in the Chinese stock market comes from the disappointment that Beijing did not announce expected policy support over the weekend after the country’s main market indexes shed 11 percent last week, brokerage Share khan said. Going ahead, all eyes were on the opening bell of Tuesday. They were worried if history would repeat itself. For on Jan 22, 2008 a day after “Manic Monday” the Sensex at one point had shed 2,273 points. It was only after the finance ministry’s intervention that the losses were pruned to 875 points.

(IANS)

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RBI’s Governor Quits After Months of Pressure From The Central Government

The timing just before this week's board meeting suggests that there's still a huge gap between the government and RBI positions on key issues

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Urjit Patel, Bank
The Reserve Bank of India (RBI) Governor Urjit Patel attends a news conference in Mumbai, India. VOA

The Governor of India’s central bank, Urjit Patel, resigned abruptly Monday after a months-long tussle over policy with the government that has raised concerns about the bank’s independence as a national election nears.

Government officials have been pressuring the Reserve Bank of India to allow some bad-debt-laden public sector banks to lend more easily, and pushed for it to hand over some of its surplus reserves to help fund the fiscal deficit.

Prime Minister Narendra Modi’s ruling Hindu nationalist Bharatiya Janata Party (BJP), which must call national polls by May, faces anger in rural communities because of slumping farm incomes, and broader concerns about a lack of jobs growth in small businesses that are finding it hard to get banks to lend them money.

Getting control of the reserves would give the government more flexibility in spending on welfare policies and farm support schemes.

Patel cited “personal reasons” for his decision to immediately step down.

His resignation came four days before an RBI board meeting, and at a sensitive time for the government.

Bank
Reserve Bank of India. VOA

 

On Tuesday, votes in key state elections are due to be counted, with exit polls suggesting the BJP could suffer some major defeats at the hands of the opposition Congress party.

That scenario, and Patel’s resignation, are expected to roil Indian markets. On Monday, forward contracts tracking the rupee against the dollar outside of market hours posted their biggest fall in more than five years.

That added to earlier losses caused largely by concerns — triggered by the state exit polls — that next year’s election might end with a defeat for the pro-business Modi and a weak coalition government, leading to policy uncertainty.

Investors will want to know quickly who Patel’s replacement will be, and how that will affect the direction of financial and monetary policy, analysts said. There was no clear front-runner, but one name being mentioned was former Finance Secretary Hasmukh Adhia who retired at the end of November.

While not commenting directly on Patel’s exit, Moody’s Investors Service said on Monday any signs the government was attempting to curtail the RBI’s independence would be a credit negative.

“We currently assume that the RBI will continue to pursue price and financial stability and implement policies towards these goals,” the agency said in an emailed statement.

Modi, Bank
India’s Prime Minister Narendra Modi gestures as he addresses a gathering in New Delhi, India. VOA

 

Patel announced his departure in a short statement on the RBI’s website in which he said that “on account of personal reasons, I have decided to step down from my current position effective immediately.”

Modi suggested he had not wanted Patel to leave. On Twitter, the Indian leader praised Patel as a “thorough professional with impeccable integrity.”

“He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability,” Modi tweeted. “He leaves behind a great legacy. We will miss him immensely.”

Building for months

Even before Patel’s announcement, the 10-year benchmark Indian government bond yield rose the most since September, and stocks posted their worst close in four weeks, with the broad NSE index losing 1.9 percent.

The pressure on him had been building for some months.

The government has made clear it was not happy with the RBI’s policies and stacked its board with pro-BJP representatives.

Former RBI Governor Raghuram Rajan, who did not take an extension after his term ended in September 2016, said Indians should be concerned about what was happening.

farmers, Bank
Police try to stop farmers during a protest demanding a better price for their produce on the outskirts of New Delhi, India. VOA

 

“We should go into the details on why there was an impasse which forced (Patel) to take this ultimate decision,” Rajan told the ET NOW television channel. “The strength of our institution is really important.”

Within the RBI there was a combination of anxiety and relief at the announcement.

“It was very shocking. … Morale of employees is very down,” said one RBI official who has been with the central bank for more than a decade. “This is very sad moment.”

But another official said Patel was often inaccessible to key financial market players and had stifled discussion within the RBI, and that now it might be possible to open up more.

“Finally things will come to peace. I can talk more openly,” this official said.

The officials asked not to be named due to the sensitivity of the matter.

Urjit Patel, Bank
Urjit Patel’s resignation signals dangerous trend: AIBEA. VOA

 

Argentine warning

The rift between the government and the central bank became very public in late October when RBI Deputy Governor Viral Acharya warned in a speech that undermining a central bank’s autonomy could be “catastrophic.”

He referred to a meltdown in Argentina’s financial markets in 2010 after a struggle between the government and the central bank over who controlled the bank’s reserves.

Last week, Patel declined to answer reporters’ questions about the rift with the government, which former government officials and analysts said they were convinced was a major factor in his decision to quit.

Also Read: Arvind Kejriwal Accuses Modi Government of Betraying Farmers

There was speculation a month ago that Patel might quit over the government pressure, but the rumors eased after the two sides reached an uneasy truce ahead of last month’s RBI board meeting.

“The timing just before this week’s board meeting suggests that there’s still a huge gap between the government and RBI positions on key issues,” said A. Prasanna, head of research at ICICI Securities Primary Dealership in Mumbai. “Markets will now hope that the government has a plan of action ready so as to restore calm.” (VOA)