Market experts predict sharp fall if RBI governor resigns

The markets are showing signs of a recovery after last months bloodbath, which erased most of the gains made in 2018. On Wednesday, the Sensex closed 1.63% in the green, reclaiming the 34,000 mark, while the Nifty closed 1.85% higher than the previous day.

However, the reaction of the markets earlier today on rumours of RBI governor Urjit Patel resigning over government interference in the central bank’s functioning made it clear that for a sustainable recovery, a resolution of the RBI-government spat is crucial.

Independent market expert Ambareesh Baliga believes that despite some positivity around crude prices and currency, a feud between the central bank and the central government will not be well received by the markets.

“Today we saw how the markets reacted to the rumours of Urjit Patel resigning…  If that spat worsens and he resigns over the next few days, then there will be a sharp correction again,” Baliga cautioned. He, however, added that if both the government and the RBI manage to find an understanding, then the recovery in the market should continue.

Ajay Bagga, executive chairman of OPC Asset Solutions too warned that Patel’s resignation will be seen as a big negative by global investors , especially under current economic conditions. “If the RBI governor resigns in such a situation, then it will be seen in a very poor light by global investors,” he said, adding that foreign investors have already pulled out close to ₹1 lakh crore from the Indian markets, so far this year.

Bagga is however hopeful that the RBI and the government will find common ground. “I think the issues will be resolved somehow… Indian regulators and the government usually work best when they are pushed against the wall. I think such a situation will make them step up and take some serious measures to address the liquidity crisis and credit crunch,” he said, adding that the sustenance of any uptick in the markets will depend on availability of liquidity.

Baliga was of the view that the recent correction in oil prices bodes well for the Indian markets. “It seems that we have hit a bottom, we have consolidated and moved on,” he said, adding that even in the upcoming state elections, if the BJP loses out in some states, the markets will only have a knee-jerk reaction which won’t last more than a few days.