Why are markets behaving like hysterical teenagers over Rajan's appointment?

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Slightly over a year back, Indian stock markets rallied after reports that Chidambaram was being appointed as the Finance Minister, replacing Pranab Mukherjee. A suave personality with terrific credentials and a reformist went down extremely well with the investing fraternity. A year later we have GDP that has fallen to a 4-year low, rupee that has dived to historic lows, elevated CPI inflation and threats of rating downgrades. Here are 5 reasons why markets should not be hysterical about Rajan's appointment as the new RBI governor and face facts.

Expect a tapering off in the Fed'a Asset Purchase Programme

Globally, emerging market currencies have tumbled whenever there has been a suggestion or talk of the US Federal Reserve tapering its asset purchase programme.

Such an action would mean less liquidity around the globe which has already sent currencies of India, Indonesia, South Africa into a tailspin. Any decision of Fed tapering scheduled for Sept 19, could send markets crashing again. Seen in the pic is Ben Bernanke, Fed Chairman.

Inflation, GDP, rupee, CAD headed in the wong direction

Economic fundamentals continue to be poor. The recent services sector PMI has fallen to a four year low, while CPI inflation remains elevated. Growth has already come in at a four year low.

Syrian action not good for markets

It now looks like strikes on Syria are almost certain. A prolonged strike in Syria would keep crude oil prices elevated, which would once again bloat the deficit. Not good news for the stock markets, especially when there is a threat of ratings downgrade.

External factors worrisome

Rising crude prices means dollar outflows and further pressure on the currency. A Fed action on tapering means the situation is likely to get out of control. 

Bond yields at near 3 per cent

Bond yields in the US are nearing the three per cent mark. This is certainly not good news for Indian markets as rising yields can lead to a sell-off in emerging markets like India.

Read more about: rajan, chidamabarm, markets, rbi, governor
Story first published: Friday, September 6, 2013, 10:08 [IST]
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