India markets in sharp recovery after early fall

Traders say BJP faring better than expected in polls, helped sentiment

Indian markets recouped sharp early losses by midmorning yesterday as election results in three states were not as poor for the ruling party as some expected, but anxiety about the central bank governor’s resignation kept sentiment subdued.

Markets initially plunged in reaction to Reserve Bank of India Governor Urjit Patel’s unexpected resignation late on Monday, which shocked many investors.

“Patel’s resignation bodes poorly for macroeconomic and financial stability in India,” Fitch Solutions Macro Research, a unit of Fitch Group, said in a note yesterday.

The broader NSE stock index tumbled as much as 1.47 per cent, but at 0752 GMT was up 0.5 per cent.

The Indian rupee had dropped 1.5 per cent to a onemonth low of 72.4625 per dollar in early trade, but pared most losses to be 71.76 versus its previous close of 71.35.

It touched the day’s high of 71.68 with some dollar-selling intervention by state-run banks on behalf of the RBI also helping.

The benchmark 10-year bond yield was down 7 basis points on the day at 7.52 per cent after initially rising as high as 7.71 per cent.

“Today’s reaction by the markets is surprising to some, but it’s a classic ‘buy the rumour, sell the news’ reaction. The news is already in the market price,” Sunil Sharma, chief investment officer at Sanctum Wealth Management, New Delhi.

Patel’s resignation came after a month-long tussle over policy with the government that has raised concerns about the central bank’s independence as a national election nears.

Government officials had been pressuring the RBI to allow some public sector banks laden with bad debt to lend more easily, and pushed for the central bank to hand over some of its surplus reserves to help fund the fiscal deficit.