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Why fingers are always pointed at auditors in India?

Akhilesh Bhargava

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Banking

RBI : Resignation Becomes Inevitable

Ali Azar

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What happens when an unstoppable force meets an immovable object? A collision of epic proportions that has far ranging effects. No! We’re not talking about the phrase that is referenced in Christopher Nolan’s Oscar winning 2008 epic “The Dark Knight” when the Joker, who is an unstoppable criminal force, comes up against Batman, who is an incorruptible vigilante crusader. We’re talking about the effect our financial system and economy will be forced to undergo when the dust finally settles on the fall out between the unstoppable Narendra Modi led political machinery of the Bharatiya Janata Party (BJP) collides with the immovable and incorruptible erstwhile Governor Urjit Patel led outfit, the Reserve Bank of India (RBI).

Amid an already volatile political and economic atmosphere which includes state election results, unfavourable macroeconomic conditions and weak global cues, we were thrown further off balance when the Governor of RBI, Urjit Patel put in his papers at close of business hours on Monday – with immediate effect. One could say that the writing was already on the wall, as the two heavyweights (FM Arun Jaitley and Urjit Patel) did not see eye to eye on a host of issues ranging from economic capital framework, regulatory norms such as PCA, nominees on the board of RBI, transfer of reserves and liquidity crisis among others. Even the long 9 hour meeting held on November 19th between the top brass of finance ministry and RBI officials ended with an uneasy truce without a firm agreement.

Important issues among others that may have finally provoked the RBI Governor to snap the cord

Autonomy is the most sacred pillar on which the foundation of the RBI is built and there are far too many allegations that the BJP led government is systematically eroding institutions in the country to throw cold water on. Urjit Patel who was the 24th governor of the RBI took up office on 4th September 2016 and was expected to remain incumbent until September 2019. His resignation gives him the undesirable distinction of being the first governor since 1990 to step down before his term ends. The effect of his resignation is yet to be felt in the financial system and stock markets, most sensitive of which are the sentiments of foreign investors (FII’s) who consider interfering with the central bank’s independence to be a touchy topic. Rating agencies are another important element in this equation and an unfavourable outlook by such agencies could see massive outflows of capital from the country at a time when we can ill afford it.

The timing of this resignation is also cause for suspicion. It is likely the governor had made up his mind to quit a while back, but may have been coaxed into announcing it only a day prior to the results of the all-important state elections, so as not to hamper the chances of the incumbent government when polling was on. It was no surprise that comments poured in from all quarters of the political and economic spectrum, some in support and some against the decision, with the statement of former governor Raghuram Rajan resonating the most, who warned that the entire country should be worried and that it is a matter of great concern. Traditionally, the RBI is a conservative organisation whose board is meant to act in an advisory capacity. But, with government intervention at every step of the way, its board is being moulded to become an operational one, which goes against its basic character

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Capital Markets

Stock Market News : Tuesday Morning Blues

Ali Azar

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Sensex

On expected lines, the stock market started on a jittery note today morning with election blues looming in the air. A handful of other factors, global and local weighed in as well; all contributing to a massive plunge in our headline indices i.e. Sensex and Nifty.

Following the downward trend this week, India’s stock futures tumbled after the shock resignation of the country’s top banker yesterday evening, RBI Governor Urjit Patel. The Singapore traded SGX Nifty, an early indicator of NSE Nifty 50 index in India, fell 1.75% to 10,334 early this morning. US stock markets ended a roller coaster ride last night after Dow erased a 500 point drop and closed higher in a downward trending market since last week. The S&P 500 rose 0.2% to 2637.72 while Nasdaq closed higher by 0.7% to 7020.52. Technology stocks such as Facebook, Amazon, Netflix and Alphabet led the rebound.

As if election uncertainty, weak global cues and Urjit Patel’s resignation wasn’t enough for the stock market to deal with, an important macroeconomic indicator, the rupee-dollar exchange rate was also playing spoil-sport with the rupee losing in excess of 1% hovering around the 72.25 per US dollar mark. All the factors combined have contributed to the Sensex dropping 400 points or 1.15% and Nifty nose-diving 105 points or 1% at 10.10 am. The bank nifty at the same time was 430 points lower which translated into a 1.64% loss for the index.

Uncertainty is the worst enemy of the markets and once the results are confirmed by afternoon, we could be in for a rebound, whatever be the result. With Congress staging an impressive comeback in the exit polls, renewed hope of winning the all-important states of Madhya Pradesh, Chattisgarh and Rajasthan are in the pipeline and we could be in for a very crucial political upset.

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Business & Finance

Sensex tanks over 500 pts; Nifty cracks below 10,400

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Mumbai | Benchmark equity indices opened with heavy losses Tuesday as investors were on edge ahead of the final assembly election results from five states, amid plummeting rupee after RBI Governor Urjit Patel’s unexpected resignation.

The Sensex opened over 500 points lower. It was trading 517.97 points, or 1.48 per cent, down at 34,441.75. In similar movement, the NSE Nifty dropped below the 10,400 mark, slumping 144.05 points, or 1.37 per cent, to 10,344.40.

The Sensex tumbled 714 points, or 2 per cent, to close at 34,959.72 in Monday’s session. The Nifty too fell 205.25 points, or 1.92 per cent, to end at 10,488.45.

“The markets are already in a down trend. They have discounted a 3-0 white wash. If even one state goes the BJP way, it will result in short-covering,” said VK Sharma, Head PCG and Capital Markets Strategy, HDFC Securities.

“As far as the RBI Governor’s resignation is concerned, it alone has the ability to knock off 200 points from the Nifty,” he pointed out. “Vijay Mallya’s extradition order by UK court is positive for the markets, but will provide some cushion only later on when he actually lands in India,” he added.

Besides nervousness over election results, the plunging rupee also weighed on investor sentiment here, traders said.

The rupee opened 110 paise, or 1.50 percent, down at 72.42 after the unexpected resignation of the Reserve Bank Governor Urjit Patel Monday, four days ahead of a crucial meeting of the board of the central bank that could have discussed issues of simmering differences with the government.

Capital markets regulator Sebi and the stock exchanges have stepped up their surveillance systems to keep manipulative forces in check amid an extreme volatility expected during the day due to Patel’s resignation and the state assembly results.

After a sharp plunge of over 700 points in the benchmark Sensex on Monday tracking the exit poll results for five states, analysts have warned that the final results showing declining votes for the ruling BJP and Patel’s resignation could trigger even a bigger loss for the markets on Tuesday.

Top losers in the session were IndusInd Bank, Reliance Industries, ICICI Bank, HDFC, Adani Ports, HDFC Bank, Kotak Bank and Hero MotoCorp, falling up to 4 percent.

While, Yes Bank bucked weak market trend, rising up to 5 percent. SBI and NTPC were other gainers.

Meanwhile, Brent crude, the international benchmark, was trading 0.27 percent up at USD 60.13 per barrel.

On a net basis, foreign portfolio investors (FPIs) bought shares worth Rs 116.22 crore Monday, while domestic institutional investors (DIIs) were net sellers to the tune of Rs 145.80 crore, provisional data available with BSE showed.

Elsewhere in Asia, Hong Kong’s Hang Seng was flat, Japan’s Nikkei dropped 0.56 percent, while Shanghai Composite Index was up 0.28 percent in early trade.

On Wall Street, The Dow Jones Industrial Average index rose 34.31 points, or 0.14 percent, to 24,423.26 on Monday.

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