Weekly Wrap: Sensex, Nifty Shrug Off BJP’s Loss As Investors Hope For Easy Liquidity

Indian equity benchmarks rose in a highly volatile week as investors shrugged off the Bharatiya Janata Party's electoral loss in three key states while they hoped for easy liquidity conditions from the new central bank governor.

The S&P BSE Sensex rose 0.81 percent to 35,963 and the NSE Nifty 50 Index climbed 1 percent to 10,805.

Markets saw heightened volatility after Urjit Patel shocked investors by resigning from governorship of Reserve Bank of India a day ahead of election results in which BJP lost power to Congress in Madhya Pradesh, Chhattisgarh and Rajasthan.

However, volatility dropped and markets rose after the government acted quickly and appointed Shaktikanta Das as the governor.

Das, who oversaw Prime Minister Narendra Modi’s controversial cash ban, was named central bank chief late Tuesday. He's often advocated rate cuts and has been pro-growth, and comes when inflation is trending lower as food and energy costs ease.

“The quick decision to appoint Shaktikanta Das was welcomed by markets,” Vijay Chopra, managing director and chief executive officer of Enoch Ventures, told BloombergQuint over phone. Although there are questions about his competence, he's a seasoned bureaucrat and can be a good conduit between Reserve Bank of India and the government, Chopra said.

The government wants RBI not to be very tight on liquidity and some easing can be expected considering this is an election year and SMEs and MSMEs have not fully come back after bearing the brunt of GST and demonetization, Chopra said.

On the election verdict, Chopra said the margin with which BJP lost indicate that numbers can be managed by BJP in 2019 and markets studied that well.

Big Stock Moves Of The Week

• Indiabulls Housing Finance: The Mumbai-based non-banking finance company rose 10.61 percent to Rs 792.90 on hopes of softer liquidity from the new RBI governor.
• Indian Oil: The state-run oil refiner rose 8.86 percent to Rs 142.50 after its board approved a share buyback proposal worth Rs 4,435 crore.
• Yes Bank: The Mumbai-based private lender rose 8.5 percent to Rs 181.60 after it informed exchanges that it has chosen a new non-executive, part-time chairman without revealing any name.
• Dr. Reddy's Labs: The Hyderabad-based drugmaker was the top Nifty loser after it fell 3.75 percent to Rs 2,591.70 after a U.S. appeals court temporarily prevented it from selling a generic version of Indivior Plc’s Suboxone opioid addiction treatment drug in its biggest market.

All sectoral gauges compiled by the National Stock Exchange ended higher led by the Nifty PSU Bank Index's 5.5 percent gain.

State-run lenders rallied on hopes that the new RBI governor will relax norms for banks under the Reserve Bank of India's Prompt Corrective Action framework which bars them from lending further.

The rupee extended its decline for the second week in a row amid Urjit Patel's shock exit from the RBI and Das' entry.

The home unit fell as much as 1.5 percent, or 109 paise, to 71.90 per dollar making it the worst Asian currency for second week in a row.

Big Talking Points This Week

• Ashok Gehlot to be Rajasthan chief minister.
• Kamal Nath appointed Madhya Pradesh chief minister.
• Urjit Patel: A RBI governor most controversial.
• Shaktikanta Das takes charge as 25th RBI governor.
• Kotak Mahindra Bank petition challenges RBI’s power to curtail promoter shareholding: Exclusive
• 2019 elections won’t affect markets, says Credit Suisse’s Neelkanth Mishra.
• Colgate’s ayurvedic bet to protect turf starts to pay off.
• Yes Bank yet to select Rana Kapoor’s successor.
• Modi spent nearly $1 billion on advertisements, foreign trips.
• NBFCs receive highest foreign fund inflow in eight months.