A day of state elections results has always brought volatility in the Indian markets. However, this Tuesday there are some substantial ongoing domestic and global problems that have worsened the element of uncertainty in the economy.
1. RBI Governor's Resignation: Urjit Patel on Monday submitted his 88-word resignation letter from the position of Governor of the Reserve Bank of India (RBI) citing personal reasons. The suddenly eventful occurrence amid state elections is worrisome for many investors of the Indian economy, especially foreign.
2. Foreign Investors: The governor's resignation after the clash between the central bank and the government in the past month would make foreign investors doubt the independence RBI, as it increases the risk to stay invested. The autonomy and credibility of the central bank are very important for international investors. However, the move alone would not result in massive sell-off, it is the next steps that the government takes to find Patel's replacement, that would become the deciding factor.
3. Rupee: The Indian currency has already seen a sharp fall this week. Apart from the resignation, mixed results for Prime Minister Modi's ruling party, strengthening US dollar and an increase in oil prices are weighing on the rupee. Experts say that a bad poll for BJP would harm the rupee.
4. Stock Markets and State Elections: If the ruling party does not win a majority today, it would bring a serious market correction. Major large-cap stocks like Reliance Industries Limited, ICICI Bank, Maruti Suzuki, HDFC Bank, and Axis Bank were seen trading lower after BJP's lower trail in the vote counting. The outcome of the elections would also set the basis for the upcoming general assembly elections scheduled for mid-2019.
5. US-China Trade Spat: White House trade advisor Peter Navarro said that Washington would raise tariffs on Chinese imports if the two countries won't come to an agreement in the 90-day negotiating period. This has fanned fresh concerns over the trade relations between the two largest economies in the world.
6. Oil: International benchmark Brent crude, that extended its gains at the beginning of the week after the OPEC and its allies agreed to cut 1.2 million barrels per day, rose further after Libya reported export disruption from a local militia group. Increase in oil prices means increased import costs and widening trade deficit in the country.
7. Brexit: Political turmoil worsens in the UK after Prime Minister Teresa May abruptly postpones a parliamentary vote session on her proposed Brexit agreement. The British pound fell to its 20-month low against the US dollar.
8. US dollar strengthens: The American dollar index rose as traders resorted to the stable greenback amid the ongoing uncertainty in the global economy on account of Brexit and US-China trade war, among others. Recent economic data released by China and Japan, two of the major Asian economies showed a slowdown in their economic activity, further pushing the demand for the US dollar. A stronger dollar makes things worse for the Indian rupee.