If any one wishes to short this market, hold on at least till September 20. The Reserve Bank of India will release its next mid-quarter monetary policy review that day.

One ‘bold’ press conference by the new RBI Governor, Raghuram Rajan, was enough for Dalal Street to shed the pessimism and turn buoyant — the rupee recovered; the BSE Sensex surged; bank stocks witnessed squaring-off short positions hurriedly; fresh long positions entered the system; and more importantly, FIIs turned buyers. However, any adverse development on the Syria front or a rally in oil prices could derail the positive momentum.

Besides, the fear that the US Federal Reserve may start tapering its quantitative easing programme continues to loom over market participants.

The US Fed meeting on September 18-19 will give some clue on the monetary easing programme.

Positive moves

The Reserve Bank last week announced that it will open a swap window to attract foreign currency . It had also allowed banks to borrow from overseas markets an additional 50 per cent of their net worth and swap that with the RBI at 100 basis points lower than the ongoing swap rate prevailing in the market.

Morgan Stanley expects these steps to help in part augment NRI dollar deposits. It believes these measures could bring in an additional $5-10 billion in FCNR deposits. It also expects overseas borrowing from banks to induce further dollar flows.

Further initiatives on the rupee and on fiscal reforms will help the markets stay firm, if not taking them higher.

Despite Rajan himself stressing that India’s slowdown is rooted in structural problems that are outside of the RBI’s influence, hopes are running high among market participants, after his ‘visionary’ actions and statements. They expect the RBI Governor to kick-start reform agenda in the right earnest.

Guarded optimism

“As hinted in Governor Rajan’s inaugural statement, we expect RBI to start looking hard at stabilising the financial system (securing financing through swaps etc, for example) and communicate that at this juncture inflation will not be assigned exceedingly high weight in its reaction function. In case we are wrong and the RBI comes out with a hawkish guidance on September 20, we will revise down India’s growth forecast further,” said Deutsche Bank Research. Monetary policy should not inject further negative impulse, added DB Research.

Siddhartha Sanyal of Barclays said a meaningful improvement in rupee sentiment would raise the likelihood of a rollback in September-October of some of the RBI’s recent liquidity-tightening measures.

“That said, we acknowledge the risks stemming from greater near-term uncertainties in global markets,” he added.

There are some cautious views also after the markets turned euphoric following Raghuram Rajan’s view.

Daniel Martin, an economist at Capital Economics Asia Pte in Singapore, said these reforms only go a little way towards lifting the gloom pervading the economy.

Some felt the market is being over euphoric on Raghuram Rajan taking over as Governor despite the prevailing ‘structural issues’ ailing the Indian economy.

“What if the Government has cleared billions of dollars of infrastructure projects but as long as the impediments in terms of clearances or financing remain — the question mark on how many of those infrastructure projects will take off clearly remains,” Aviral Gupta, Founder & Fund Manager of Mynte Advisors, said.

With global eyes on India and its market, no wonder Bloomberg Markets magazine chose Raghuram Rajan as one of the 50 most influential people who can shape economies, move markets and change the world.

>badrinarayanan.ks@thehindu.co.in

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