Firmness in global stocks helped Indian stocks reverse initial losses triggered by Reserve Bank of India (RBI) Governor Raghuram Rajan's surprise announcement over the weekend that he will not seek a second term as the RBI chief and will be returning to academia when his term as RBI Governor ends on 4 September 2016. At 10:15 IST, the barometer index, the S&P BSE Sensex, was up 71.13 points or 0.27% at 26,697.04. The Nifty 50 index was up 17.10 points or 0.21% at 8,187.30.
The Sensex rose 124.32 points, or 0.47% at the day's high of 26,750.23 in morning trade, its highest level since 15 June 2016. The index fell 178.03 points, or 0.67% at the day's low of 26,447.88 at the onset of trading session, its lowest level since 16 June 2016. The Nifty 50 index rose 33.65 points, or 0.41% at the day's high of 8,203.85 in morning trade, its highest level since 15 June 2016. The index fell 62.85 points, or 0.77% at the day's low of 8,107.35 at the onset of trading session, its lowest level since 16 June 2016.
In overseas stock markets, Asian stocks rose as rising expectations of Britain voting to remain in the European Union (EU) lifted risk sentiment. Three British opinion polls ahead of the EU membership referendum on 23 June 2016 showed the 'remain' camp recovering some momentum, although the overall picture remained one of an evenly split electorate. US stocks fell during the previous trading session on Friday, 17 June 2016, as investors continued to fret over the possibility that the UK may leave the EU.
The UK government holds a referendum on Thursday, 23 June 2016, on whether the country should remain a member of the European Union (EU). The Organization for Economic Cooperation and Development (OECD) has warned that Britain's leaving the EU -- the so-called Brexit -- could send shocks through global financial markets. The OECD said on 1 June 2016 that a United Kingdom vote to leave the EU would trigger negative economic effects on the UK, other European countries and the rest of the world. Brexit would lead to economic uncertainty and hinder trade growth, with global effects being even stronger if the British withdrawal from the EU triggers volatility in financial markets, the OECD said. By 2030, post-Brexit UK GDP could be over 5% lower than if the country remained in the European Union, the OECD said.
While announcing his decision in a message to the RBI staff on Saturday, 18 June 2016, not to seek a second term as RBI Governor, Rajan said he has accomplished all of what was laid out on that first day of his term as agenda for action. He, however, added that two subsequent developments are yet to be completed. Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term. Rajan, however, added in his statement that India's financial market are prepared to ride out imminent sources of market volatility like the threat of Brexit. Brexit refers to the referendum on 23 June 2016 by British voters to decide whether the country should remain a member of the European Union or leave it.
Rajan also said that India has made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event.
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Rajan has been credited with stabilizing the rupee against the dollar, bringing down inflation and cleaning the bad-loan mess in the Indian banking system.
The market breadth, indicating the overall health of the market, was positive. On BSE, 1,003 shares rose and 864 shares fell. A total of 113 shares were unchanged. The BSE Mid-Cap index was currently down 0.06%. The BSE Small-Cap index was currently up 0.09%. Both these indices underperformed the Sensex.
Realty shares edged higher after the Securities and Exchange Board of India (Sebi) on Friday, 17 June 2016, announced that it will bring out a consultation paper proposing certain changes and providing some clarification on Real Estate Investment Trusts (REITs) Regulations, 2014 with a view to smoothen the process of registration of REIT with Sebi and also the process of launching of the offer. Unitech (up 3.89%), Anant Raj (up 3.73%), Parsvnath Developers (up 3.46%), Phoenix Mills (up 2.28%), Sunteck Realty (up 2.14%), Housing Development and Infrastructure (HDIL) (up 1.61%), Sobha (up 1.42%), DLF (up 1.34%), Indiabulls Real Estate (up 0.86%), D B Realty (up 0.72%), Godrej Properties (up 0.47%), Prestige Estates Projects (up 0.35%) and Omaxe (up 0.10%) edged higher. Mahindra Lifespace Developers (down 0.37%), Peninsula Land (down 1.42%) and Oberoi Realty (down 1.54%) edged lower.
Sebi has proposed allowing REITs to invest up to 20% in under construction assets. Sebi will also recommend changes in the number of sponsors. The regulator also proposed rationalization of compliance with respect to Related Party Transactions (RPTs) requirements. Sebi has also proposed aligning minimum public holding requirement with Securities Contracts Regulation Rules (SCRR). The stock market regulator has also proposed removing the restriction on the special purpose vehicles (SPV) (only in case of such SPV being a holding company) to invest in other SPVs holding the assets. The consultation paper will be placed on the Sebi website in due course seeking public comments.
IT shares edged higher as the rupee edged lower against the dollar. HCL Technologies (up 3.38%), MindTree (up 1.67%), Tech Mahindra (up 1.52%), Hexaware Technologies (up 1.44%), TCS (up 1.24%), Infosys (up 1.11%), Wipro (up 0.87%), MphasiS (up 0.60%), Oracle Financial Services Software (up 0.59%) and Persistent Systems (up 0.48%), edged higher.
A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports. In the foreign exchange market, the partially convertible rupee was hovering at 67.415, compared with its close of 67.08 during the previous trading session. The rupee edged lower against the dollar after Rajan's surprise announcement over the weekend he would step down as RBI Governor when his term ends on 4 September 2016. Rajan's leaving is negative for the currency because he has been credited with stabilizing it against the dollar.
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