Stocks and rupee on Monday took an early morning plunge on RBI Governor Raghuram Rajan’s no to a second term, but soon recouped their losses on hectic buying by some institutions and soothing voices from rating agency Fitch and some prominent marketmen while fading Brexit worry helped too.
The stock market benchmark index Sensex was down at 26,438 points in pre-open trade between 09:00-09:15 hours, down nearly 200 points from its previous close, but early morning buying orders helped limit the opening loss at 178 points.
Hectic buying thereafter helped the Sensex return to positive territory within minutes and the index was trading nearly 200 points higher by early afternoon trade, touching an intra-day high of 26830.48 points at around 1230 hours.
Marketmen said some big domestic institutions could have been pressed into buying to check the losses, as turnover was relatively higher in early morning trades for a Monday.
The rupee also opened sharply lower by 57 paise at Rs 67.65 against the US dollar, but soon pared its initial losses and was still trading down by 29 paise from the Friday level at Rs 67.37, which traders attributed to RBI’s intervention.
There have been concerns about a sharp plunge in the stock and rupee valuations after Rajan made a surprise announcement over weekend that he would not take a second term at the RBI.
Sustained bouts of dollar demand from banks and importers amid bearish US dollar overseas also weighed on the rupee.
In overseas trade, oil prices extended gains in Asia on the back of a weaker US dollar and easing fears of UK’s exit from the European Union.
The US dollar fell for the fourth day in a row early today, trading lower against most major currencies, making the dollar-priced commodity cheaper for those using other currencies and pushing up the demand.
Seeking to allay the concerns, government sources said that a successor would be announced well in advance to replace Rajan after he demits office at the end of his current three-year tenure on September 4 to help smoothen the transition.
Several prominent marketmen, including ace investor Rakesh Jhunjhunwala, said in their commentaries before and during the trading hours that Rajan’s exit should not be a major worry for the markets as right policies are in place.
However, the biggest soothing voice came from global rating agency Fitch which sought to allay concerns of any impact on India’s sovereign ratings due to Rajan’s exit, saying “policies are more important than personalities” on this front.