Investors brace up for ‘wrath of the markets’

The Urjit Patel shocker has sent jitters down the spine of investors and is sure to have an impact on the markets on Tuesday, which were already feeling spooked by global cues and pre-election blues on Monday.

Soon after the resignation, news agency Reuters reported that the rupee had registered its biggest daily slump in five years. Sensex, too, had plunged 713.50 points to close at less than 35,000. The election results – in case it is 0-3 for the BJP – could send the market into a tailspin.

Most investors and market players voiced their concern at the resignation which has come amidst a palpable truce between the government and the RBI. "This does not bode well for the RBI, the government, or the economy. There will be a knee-jerk reaction on Tuesday in the market and, coupled with the election results, it is going to be a very volatile day," Anurag Bhatia, chief executive at Minance, an investment management firm, said.

Though he sees only a short-lived impact on markets, he was quick to add that the bigger issue at stake is what this means for the future of the central bank.

Brokerage firm HDFC Securities' VK Sharma said the resignation can "knock off" 200 points from the Nifty, which corrected by 1.92 percent to close at 10,488.45 points on Monday, primarily due to fears of the ruling BJP getting routed in the state elections. "Patel's resignation will shake foreign and domestic trust in the RBI's autonomy; it shows that a red line has been crossed," Bhatia warned.

"The timing is surprising as the Governor continued after the 'contentious' board meeting and also during the December monetary policy," brokerage Anand Rathi said, adding this can weaken the rupee further.

Stating that this has created uncertainty, it said appointment of a "credible governor quickly" can salvage the situation for government which has to face the Opposition in Parliament from Tuesday in the winter session.

However, Bhatia was skeptical about this, saying even if government does appoint someone, the "suggestion of being a government proxy will be hard to shake off." IIFL group chairman Nirmal Jain said a successor is more important than doing a postmortem of what led to the resignation. "It's very important at this stage that the government quickly finds a replacement with impeccable and high credentials to ensure continuity and stability," he said.