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Raghuram Rajan's decision to go back to academics might spell short term negativity for the stock, currency and bond markets.
Stock and currency markets are set for a volatile opening on Monday on concerns over RBI chief Raghuram Rajan's abrupt no to a second term while the upcoming Brexit referendum may add to the worries of investors from India and abroad.
While speculations have been rife on whether Rajan would get a second shot at RBI governorship, his decision to go back to academics might spell short term negativity for the stock, currency and bond markets, feel experts.
Besides, market cues are likely to depend on Brexit referendum in the UK, slated for June 23, progress of monsoon, movement of rupee and fluctuating global oil prices.
Geojit BNP Paribas' Chief Investment Strategist V K Vijayakumar said Rajan's decision is indeed "bad news" and comes at a wrong time when the global economy is concerned about the consequences of a possible exit of the UK from the European Union.
"The currency market and the stock market will be impacted negatively when they open on Monday... We feel the initial knee jerk reaction of the market will be short lived because India's macros are in a sweet spot," he noted.
Similar to the upcoming referendum being described as 'Brexit', Rajan's no to a second term is now widely termed 'Rexit'.
Experts also opined that the domestic economy and the RBI have the strength to overcome the initial negative impact.
SAMCO Securities CEO Jimeet Modi said Rajan's decision not to seek a second term would create an emotional shock.
"We also believe the markets are mature enough to assimilate the fact and move on. It may create a knee jerk reaction in the short term," he said.
After witnessing volatile trading sessions, the 30-share benchmark Sensex shed 9.84 points to close at 26,625.91 points in the week ended June 17.
On the other hand, some feel that the development should not come as a surprise as there have been speculations on whether Rajan would be getting a second term as RBI Governor.
Centrum Wealth Management's ED & CIO Kunj Bansal said there could still be some sentiment-based movement that could be seen in the market.
"The new Governor would be expected to continue the good work done by Rajan and take steps to propel the growth engine in the economy," he added.
On Saturday, RBI Governor Raghuram Rajan said no to a second term in the post, a surprise decision the industry and opposition parties termed as nation's loss.
"...on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016," Rajan said in a message to RBI staff.
"Brexit and monsoon progress to set the sentiment this week. Markets will track their global peers until the Brexit event gets out of the way and we expect volatility to rise," Trade Smart Online's Founder Director Vijay Singhania said.
The UK government will hold a referendum on June 23 on whether the country should remain in the European Union (EU).
According to experts, Brexit could be a major risk in terms of negative impact on the sentiment in both domestic as well as global markets.
The British referendum is once-a-century type of event which could have a systemic bearing on some of industries and companies, Jimeet Modi said.
Moneypalm's MD and CEO said Nirdosh Gaur said the Brexit referendum is expected to be a factor for the markets.
Meanwhile, the rupee slipped 32 paise to close the week at 67.08 against the American currency on fresh dollar demand and slowing capital inflows into equity market.