Markets shrug off BJP loss in Assembly polls, Urjit Patel's sudden exit

Former Economic Affairs Secretary Shaktikanta Das was appointed the RBI governor after the markets had closed for the day

The equity markets recouped losses and shrugged off the Bharatiya Janata Party's (BJP's) poor showing in the state elections on Tuesday. Reserve Bank of India (RBI) Governor Urjit Patel's resignation on Monday also failed to affect Street sentiment. 

During the market hours, the BJP looked set to lose power in Madhya Pradesh, Chhattisgarh and Rajasthan, putting a question mark on the party’s prospects in the upcoming general elections next year. 

As anticipated, the benchmark indices opened with a gap-down, reacting negatively to the news of Patel’s resignation. The Sensex rebounded 723 points from the day's low of 34,426 to end the day with gains on the back of short covering, amid a rally in the global markets.

Experts said the election setback for the BJP was largely factored in by the market on Monday, when the benchmark indices dropped 2 per cent. On the other hand, investors chose to wait and watch developments in the RBI, amid optimism that a new governor announcement was expected soon.

Former Economic Affairs Secretary Shaktikanta Das was appointed RBI governor after the markets had closed for the day.

The Sensex ended 0.5 per cent, or 190 points, higher at 35,150. The broader market indices BSE MidCap and BSE SmallCap outperformed the benchmark, gaining 1.5 per cent each. 

Following Das' appointment, the Nifty futures on the Singapore Exchange were trading at 10,630. In the domestic market, the Nifty had closed at 10,549 on Tuesday.

Foreign portfolio investors (FPIs) sold stocks worth Rs 24 billion, while domestic institutional investors (DIIs) provided buying support to the tune of Rs 22.5 billion on Tuesday, the provisional data compiled by the BSE showed. 

Market players said the high DII buying figure suggests that LIC and domestic mutual funds provided buying support to the market, even as certain large FPIs pruned their holdings because of concerns over the RBI's autonomy.  

"It was not a dramatic loss for the BJP as envisaged earlier, and the results might not impact their performance in the national elections, which the market viewed as positive," said U R Bhat, director, Dalton Capital Advisors (India). 

"Most of the negative news is out of the way, domestically. Globally, the resolution on trade wars, Brexit and the France imbroglio will be factors to watch out for."

Experts say stocks will react positively to Das' appointment. But they added they will keep a close watch on RBI developments to understand the policy stance and to gauge if the independence of the central bank is compromised or not.

Financial and banking stocks rallied on Tuesday on hopes that the new RBI governor would relax some of the restrictions imposed during Patel's tenure.

The biggest Sensex gainer was YES Bank, which rallied 7.3 per cent. State Bank of India gained 2.85 per cent and Axis Bank rallied 2.4 per cent.  Among the BSE500 stocks, Corporation Bank and UCO Bank were among the top gainers, gaining 10 per cent and 7 per cent, respectively. 

Around 1,611 scrips, or 63 per cent, of BSE stocks advanced. Nineteen of the 30 Sensex components and all except one of the 19 sectoral sub-indices compiled by the BSE rose, with the index of consumer durables stocks gaining the most at 2.6 per cent. Apart from consumer durables, health care, information technology, and fast-moving consumer goods were the other major sectoral gainers.

"A lot also depends on what happens globally, especially on the trade war front. Markets will continue to be volatile," said Andrew Holland, chief executive officer at Avendus Capital Public Markets Alternate Strategies.